The Reserve Bank of New Zealand announced on Wednesday (April 9) that it will lower its official overnight repo rate (OCR) by 25 basis points to 3.50%, marking the fifth consecutive rate cut since August last year, with a cumulative rate cut of 200 basis points. This decision aims to address the deterioration of the global trade environment and domestic economic weakness, while reserving space for subsequent policy adjustments. After the announcement of the resolution, the NZD/USD exchange rate fluctuated in the short term, rising by 0.5% to 0.5560 at one point, reflecting the market's full digestion of policy expectations.

Background and Decision Basis of Interest Rate Reduction

Against the backdrop of escalating global trade tensions, the comprehensive new tariff policy announced by US President Trump has triggered market turbulence. The Reserve Bank of New Zealand pointed out that the increase in trade barriers has led to a deterioration of global economic activity prospects, bringing "dual pressure" to New Zealand - both weakening export demand and affecting domestic prices through tariff transmission. The inflation rate is currently close to the median of the target range of 1% -3%, providing room for policy adjustments. The committee emphasized that this interest rate cut is "in line with the policy mission of maintaining price stability".

Market response and technical analysis

After the announcement of the resolution, the foreign exchange market showed a characteristic of "buying expectations and selling facts", with the New Zealand dollar/US dollar briefly rising and then falling back, maintaining a range of 0.5485-0.5570 during the Asian trading session. Technically speaking, the New Zealand dollar is currently near the lower limit of the daily Bollinger Bands, with 0.5469 forming short-term support and the 0.5645-0.5850 area forming multiple resistance. The market focus has shifted towards the upcoming release of inflation data from China and the United States, but analysts point out that the short-term impact of economic data may be limited in the context of the trade war dominance.

Economic Status and Policy Challenges

The latest data shows that although the New Zealand economy achieved a 0.7% month on month growth in the fourth quarter of 2024, breaking away from a technical recession, household spending and residential investment remain weak. The transmission of monetary policy faces a dual challenge: it needs to respond to sudden changes in the global trade environment and stimulate domestic demand. Interim President Hawkesby emphasized the "gradual response" strategy in the first policy meeting, pointing out that as the impact of tariff policies becomes clearer, there is "room for further interest rate cuts if necessary".

Future policy path

The committee has clarified that the policy direction will depend on the evolution of inflation and the degree of impact of the trade war, and the next interest rate meeting will be held in May. The statement emphasizes the importance of maintaining policy flexibility and suggests the possibility of adopting a "data-driven" gradual adjustment strategy. The market generally expects that if the trade dispute between China and the United States continues to escalate, the Reserve Bank of New Zealand may launch a new round of easing cycle in the second half of the year.

Summary: Policy Balance under Multiple Risks

This interest rate cut marks a new stage of monetary policy adjustment for the Reserve Bank of New Zealand. After completing consecutive interest rate cuts of 200 basis points, policy makers are trying to find a balance between stimulating the economy and preventing external risks. Despite the lackluster short-term market response, the ongoing uncertainty in the global trade environment remains a major risk variable. With the upcoming release of key inflation data from China and the United States, as well as the approaching May interest rate meeting, the New Zealand central bank's policy toolbox and communication strategy will face greater challenges. The future direction of monetary policy may exhibit more cautious features of "taking one step at a time", seeking a dynamic balance between maintaining financial stability and promoting economic growth.