Canary in the coal mine? New Zealand joins rate cut trend

Canary in the coal mine? New Zealand joins rate cut trend

In the past 14 months, the Reserve Bank of New Zealand (RBNZ) has cut its cash rate on seven separate occasions by an aggregate 3.0 per cent from 5.5 per cent to 2.5 per cent, as seen in Table 1.

Table 1. Reserve bank of New Zealand rate cuts

The other two Western world economies which have seen relatively severe Central Bank cuts over the past 12-15 months are Europe (-2.35 per cent to 2.15 per cent) and Canada (-2.50 per cent to 2.50 per cent). Europe and Canada have an unemployment rate of 6.2 per cent and 7.1 per cent, respectively. 

The latest 0.5 per cent cut, the fifth of the seven cuts from the RBNZ, was larger than the 0.25 per cent expected by economists. The RBNZ indicated that it was “open” to further cuts in the medium-term, leading to expectations for a 2.0 per cent cash rate.

New Zealand’s Gross Domestic Product (GDP) contracted by 1.1 per cent year-on-year (YoY) in the June 2025 Quarter, and expectations are for this contraction to continue, albeit with some modest recovery, into the September 2025 Quarter as “there remains significant spare capacity in the New Zealand economy”.

Cotality (formerly known as Core Logic) estimates that average New Zealand home values have declined by 17 per cent from their peak, with Auckland down 23 per cent and Wellington down 25 per cent. According to the Real Estate Institute of New Zealand (REINZ) the median home sells for NZD$760,000 and excluding Auckland (NZD$960,000) the median home sells for NZD$690,000. And Realestate.co.nz argues the total number of homes for sale on their website in September 2025, was at an 11 year high for the month of September.

New Zealand’s annual inflation rate is projected to hit 2.7 per cent in the September 2025 Quarter, at the upper end of the RBNZ’s target band of 1 per cent to 3 per cent and expectations are for this to decline given the unemployment rate is at 5.2 per cent, a five-year high.

Trans-Tasman migration is surging with 33,000 New Zealanders conferred Australian citizenship in fiscal 2025, more than six-fold the 15-year average of 5,300. This is attributable to the change to the “Special Category Visa (SCV)” for New Zealand citizens living in Australia which, in 2023, created a direct pathway to Australian citizenship.

As I noted in an earlier article: Rates reset across the west, the trend toward rate cuts is now well established across much of the Western world – with the reasons for these moves, and the consequences, varying widely between the economies.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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