Central bank cites tariff uncertainty and weak confidence
The Reserve Bank of New Zealand (RBNZ) acknowledged on Thursday that the economic impact of its recent interest rate cuts has been slower than expected. Governor Christian Hawkesby told a parliamentary committee that rising global tariffs and trade barriers have weakened demand and dented business and consumer confidence.
“Higher tariffs and trade barriers have created a negative demand shock for the world,” Hawkesby said. He pointed to policy uncertainty, particularly after U.S. President Donald Trump’s “Liberation Day” announcements in April, as a key factor holding back recovery in New Zealand.
Interest rate slashed to lowest in three years
On Wednesday, the RBNZ cut its policy rate by 25 basis points to 3.00%, marking a three-year low. This brings the total rate reduction to 250 basis points since August 2024. The central bank has signaled further cuts in the coming months to support economic growth.
“What we’re seeing is the reaction to our interest rate cuts so far being a bit slower than we anticipated,” Hawkesby noted, adding that U.S. tariffs and uncertainty were impacting confidence even though New Zealand was not among the hardest-hit countries.
U.S. tariffs and global slowdown weigh on outlook
In May, the U.S. imposed a 15% tariff on imports from New Zealand, exceeding the 10% initially forecast. While less severe than tariffs imposed on other nations, the move still poses risks to key New Zealand industries. However, Hawkesby stressed that the larger concern is the broader slowdown in global demand.
“The greater impact is how a softer global economy reduces demand for goods and services. That’s what we are focused on in terms of the way we set interest rates,” he said.
Growth recovery expected in second half of 2025
Despite current challenges, the RBNZ remains cautiously optimistic. Hawkesby believes the economy has hit its lowest point in the second quarter of 2025. “There is a light at the end of the tunnel,” he said. “We’re seeing growth pick up through the second half of this year.”
