New Zealand's central bank may cut interest rates twice more this year to 2.50%: Reuters poll

Following the Reserve Bank of New Zealand's (RBNZ) August 20 policy meeting, which unexpectedly flagged further reductions, a Reuters poll indicates that 75% of economists now anticipate an additional 50 basis points of easing by year-end, bringing the Official Cash Rate to 2.50%. This revised outlook, driven by a shaky economy and inflation within the RBNZ's target range, signifies a more aggressive stimulatory monetary policy than previously expected, with nearly 90% forecasting a 25 bps cut at the October 8 meeting.

Analysis

The Reserve Bank of New Zealand (RBNZ) has adopted a significantly more dovish monetary policy stance than previously anticipated, signaling a more aggressive easing cycle to support a shaky economy. Following its August 20 meeting, a Reuters poll reveals a sharp pivot in economist expectations, with over 75% now forecasting two additional 25 basis point cuts by year-end, which would bring the Official Cash Rate (OCR) to 2.50%. This marks a substantial shift from the pre-meeting consensus, which was split between no further cuts and only one more. The RBNZ's justification for this outlook is its assumption that the economy stalled in the second quarter while inflation remains within its 1%-3% target range, providing ample room for stimulus. The market's conviction is strong, with nearly 90% of economists expecting a 25 bp cut at the next meeting on October 8. This sentiment is echoed by New Zealand's largest commercial banks—ANZ, ASB, BNZ, Kiwibank, and Westpac—all of which now forecast a cumulative 50 bps of easing by the end of the year. Median forecasts indicate this lower rate of 2.50% is expected to be held through 2026, pointing to a prolonged period of accommodative monetary conditions.

Key Decisions for Investors

• Given the RBNZ's unexpectedly aggressive dovish pivot, investors should anticipate potential downward pressure on the New Zealand Dollar (NZD) as the central bank's easing cycle appears more pronounced than previously priced in by markets.
• The consensus forecast for the Official Cash Rate to fall to 2.50% by year-end and hold through 2026 suggests a bullish outlook for New Zealand government bonds and other duration-sensitive fixed-income assets.
• Investors should re-evaluate exposure to rate-sensitive domestic equities, particularly in the banking sector where all major institutions now align on the easing forecast, and closely monitor upcoming inflation and growth data as key catalysts for future RBNZ actions.