New Zealand eyes August rate cut after ‘dovish pivot’

Market pundits have ramped up their bets that New Zealand may cut interest rates as soon as next month, after an unexpected early “dovish pivot” from the central bank on Wednesday.

While the Reserve Bank of New Zealand left the cash rate at 5.5 per cent for an eighth straight meeting, the highest level since 2008, its statement also said that policy would “be tempered over time, consistent with the expected decline in inflation pressures”.

The comments are a marked departure from the RBNZ’s last meeting in May, when policymakers discussed the case to increase rates further while signalling that a cut was unlikely before the third quarter of 2025.

Adrian Orr, governor of the Reserve Bank of New Zealand. Bloomberg

There was also no mention of a rate increase in the record of the board meeting, but rather confidence that inflation would return to the central bank’s 1 to 3 per cent target band this year.

“This is a material shift,” wrote UBS economists including Nic Guesnon in a report to clients. “UBS held a non-consensus view the RBNZ would shift their guidance in the dovish direction, but we expected this to arrive later in August [after key quarterly inflation data].”