The Reserve Bank of New Zealand (RBNZ) has already signaled a 25 basis point cut in its meeting on November 26. With this move, the official cash rate will be reduced to 2.25%. We understand that this decision comes in the face of enormous economic hardships. Exports to the United States have particularly fallen by a significant 3% due to continued tariffs. Even more positive, the RBNZ’s assessment finds exports to all other markets booming. At an annual growth rate of 11%, they easily make up for what’s lost in the US market.
Despite these surges, analyst consensus is that this will be the final rate reduction of the cycle. The RBNZ’s decision appears influenced by a larger-than-expected contraction in New Zealand’s second-quarter GDP, which fell by 0.9% quarter-on-quarter. The central bank acknowledged that this downturn stemmed from “an unusually large negative impact from seasonal balancing and contingent industry-specific factors.”
Economic Context and Export Trends
The RBNZ’s outlook remains cautious yet optimistic. After a rocky start, exports to the US yielded great promise. Continued expansion in non-US markets have had a leveling effect, with non-US markets stabilizing the overall export environment. Chinese exports, New Zealand’s most critical export destination, are doing extremely well according to the RBNZ. This asset-rich growth is providing critical buoyancy to the superheated economy.
“Welcome signs of new activity in the manufacturing sector with a boost in new orders supporting sentiment.” – The Treasury
This announcement further highlights the historic resilience we’re seeing across many industries beyond the old export pipelines. The continued positive momentum in manufacturing is a sign that our domestic demand is strong, which could help lead our economy’s recovery.
Inflation and Economic Projections
Inflation remains a thorny issue for the RBNZ too, and with non-tradable inflation still at 3.7% yoy, the risk of inflation becoming embedded is lurking around their feet. Second, because of this very high rate of inflation the central bank’s room to maneuver by bringing real rates deeper into negative territory is severely limited. The RBNZ’s inflation forecasts for the fourth quarter of this year predict a consumer price index (CPI) at 2.9%, slightly below analysts’ expectations of 2.4% for both the first and second quarters of 2026.
The inflation landscape hasn’t changed much since the RBNZ’s August forecast. This remarkable stability would complicate any aggressive future monetary policy response. Analysts have noted that their forecasts exceed those of the RBNZ by 0.2 percentage points, suggesting a divergence in expectations regarding inflation trends and economic recovery.
Market Expectations and Future Outlook
As a result, market reactions have already started to price in expectations for next week’s rate cut. Most analysts are calling for a 25 bp cut at the November meeting. Markets are now projecting a total cut of 42 basis points by May 2026. This forecast suggests that while immediate concerns are being addressed through rate adjustments, the RBNZ may be nearing the end of its easing cycle.
The consensus has NZD/USD bouncing back above 0.570 by year-end. This signals some confidence in economic recovery as uncertainty over the US-China trade deal starts to dissipate. As US-China trade relations stabilize, New Zealand would benefit from a more predictable global trading environment.