The latest survey shows that the Reserve Bank of New Zealand is likely to keep the official overnight call rate (OCR) unchanged at 3.25% at the upcoming meeting on July 9, and may only cut interest rates by 25 basis points once this year. This is an adjustment from the market's previous expectations, which has triggered widespread discussion. After experiencing an aggressive tightening cycle, New Zealand's economy is gradually recovering and inflationary pressure has eased, but the uncertainty of medium-term price trends remains. Against this background, the central bank's cautious attitude and future policy direction have become the focus of the market.

The Reserve Bank of New Zealand is expected to keep interest rates unchanged at 3.25% on July 9

According to a Reuters survey conducted from June 30 to July 3, 19 of the 27 economists interviewed clearly predicted that the Reserve Bank of New Zealand will choose to maintain the official overnight call rate (OCR) at 3.25% at the monetary policy meeting on July 9. This forecast has been widely supported by major banks in New Zealand, including ANZ, ASB, BNZ, Kiwibank and Westpac. Major financial institutions believe that the central bank is more inclined to keep the policy stable in the current economic environment. Only 8 economists expect the central bank to cut interest rates by 25 basis points.

The decision to keep interest rates unchanged reflects the central bank's prudent assessment of the current economic situation. Since August last year, the Reserve Bank of New Zealand has cut interest rates by 225 basis points, ending one of the most aggressive tightening cycles in history to curb high inflation. These interest rate cuts have effectively supported the economic recovery, especially the economic growth rate of 0.8% in the first quarter of this year (January to March), marking New Zealand's successful escape from the shadow of recession. Against the backdrop of stabilizing economic growth, the central bank seems more inclined to observe subsequent economic data, especially the second quarter inflation data to be released on July 21, to decide whether to further adjust policies.

Inflationary pressures ease but uncertainty remains

New Zealand's inflation situation is one of the key factors affecting the central bank's decision-making. According to the latest data, the inflation rate in the first quarter of this year has dropped to 2.5%, successfully falling back to the target range of 1%-3% of the Reserve Bank of New Zealand. This achievement is due to the effective implementation of the previous tightening policy, and inflationary pressure has been significantly alleviated. However, economists point out that the uncertainty of medium-term price pressure is increasing. Fluctuations in the global supply chain, instability in energy prices and tight domestic labor markets may pose a potential threat to future inflation trends.

Since the second quarter inflation data will be released on July 21, later than the interest rate decision meeting on July 9, the central bank is less likely to further ease policy at this meeting. Many economists believe that the central bank needs more data to assess the sustainability of inflation and the stability of economic recovery. Therefore, keeping interest rates unchanged is seen as a "wait-and-see" strategy to ensure that the timing and intensity of policy adjustments are more precise.

Adjustment of interest rate cut expectations within the year: Only one rate cut left?

The Reuters poll also showed that economists' expectations for the Reserve Bank of New Zealand's future rate cut path have changed significantly. In the May survey, most economists expected the central bank to cut interest rates twice more by a total of 50 basis points in 2025. However, the latest survey results show that market expectations have been adjusted to only one more rate cut this year, by 25 basis points, to 3.00%. Among the 22 economists surveyed, 16 believed that the rate cut would occur before the end of September, and half of the experts predicted that the August meeting would be the window period for rate cuts.

Wesley Tanuvasa, an economist at ASB Bank, pointed out in a comment that New Zealand's economic data has been mixed since the May monetary policy statement. On the one hand, the improvement in economic growth and inflation data has provided the central bank with policy space; on the other hand, the volatility of some economic indicators and changes in inflation expectations have increased the uncertainty of decision-making. He said: "It is a reasonable choice to suspend interest rate adjustments now and observe inflation expectations data. This will help the central bank determine whether it is appropriate to cut interest rates in August. At present, the market has begun to digest the possibility of a rate cut in August."

The delicate balance between economic recovery and policy trade-offs

The recovery of the New Zealand economy provides the central bank with greater policy flexibility, but also brings new challenges. After getting out of recession, the sustainability of economic growth has become a focus. The 0.8% growth rate in the first quarter has injected confidence into the economy, but the uncertainty of the global economic environment, fluctuations in domestic consumer demand and changes in export markets may put pressure on future growth.

At the same time, the central bank needs to find a balance between supporting economic growth and controlling inflation. Too fast a rate cut could reignite inflationary pressure, while too slow a policy easing could dampen the momentum of economic recovery. A Reuters survey showed that economists generally believed that the central bank would take a cautious pace, giving priority to ensuring that inflation remained stable within the target range while providing moderate support for economic growth.

summary

Overall, the latest survey reveals the New Zealand central bank's cautious attitude in its July 9 interest rate decision and the recalibration of the path of interest rate cuts this year. The decision to keep interest rates unchanged reflects the central bank's comprehensive consideration of economic recovery and inflation, while the expectation of only one more interest rate cut this year indicates that the central bank will remain highly restrained in easing policies. In the future, with the release of second quarter inflation data and other key economic indicators, the policy path of the New Zealand central bank will become clearer. Will August be a turning point for interest rate cuts? The market and investors are waiting to see.