SYDNEY (Reuters) -New Zealand’s interest rates are in the 2.5%-3.5% neutral band, with past policy easing yet to flow through to the economy to make future moves more dependent on how the economy evolves, a senior central banker said on Friday.
In an interview with Reuters, Reserve Bank of New Zealand Assistant Governor Karen Silk highlighted the enormous global trade uncertainties, but the central projection is for the economy to recover on the back of past easing, offsetting some trade risks.
The RBNZ cut interest rates by 25 basis points to 3.25% on Wednesday but signaled it might be nearing the end of the easing cycle, having cut rates by a whopping 225 bps since August.
When asked about why there is no need to go below the neutral rate, Silk said rate cuts would take time to flow through and the strong commodity prices are pointing to a buoyant export sector.
“The track for (OCR) also indicates that whatever we do is going to be data-dependent, and then we will be looking to the data to help us to decide when or if we cut further from here.”
Silk said global central bankers cannot simply react to the first thing they see when asked about the latest court rulings on U.S. President Donald Trump’s tariffs.
“There isn’t certainty to where these things land. But what we do know is that we do have heightened uncertainties.”
A global front-runner in withdrawing pandemic-era stimulus, the RBNZ lifted rates 525 basis points between October 2021 and September 2023 to curb inflation in the most aggressive tightening since 1999.
The punishing borrowing costs took a heavy toll on demand and tipped the economy into recession last year.
While the economy has emerged from the slump, growth remains weak and is being further hampered by a slowdown in the global economy and the government’s tight fiscal policy.
(Reporting by Stella Qiu; Editing by Sonali Paul)
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