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We expect the Reserve Bank of New Zealand to cut rates by 25bp to 2.25% on 26 November. However, upside risks to inflation and growth mean, in our view, that this will be the last cut of the cycle. With markets still speculating on further easing, there is room for NZD to benefit from a more hawkish RBNZ assessment this week.

 
Growth concerns caused the October cut
 

When the Reserve Bank of New Zealand cut rates in October, we were not entirely convinced by its rationale. Effectively, the trigger was the larger-than-expected contraction in second-quarter GDP (-0.9% quarter-on-quarter), but the RBNZ itself admitted there was an unusually large negative impact from seasonal balancing and contingent industry-specific factors. Indeed, the assessment on spare capacity was not materially changed on the back of those growth figures.

The inflation picture has, instead, remained broadly unchanged since the August projections. Third-quarter CPI matched those estimates: 3.0% for headline year-on-year, and 1.0% for non-tradable QoQ.

One last cut this week
 

The RBNZ is widely expected to cut rates by another 25bp to 2.25% at its 27 November meeting. We are aligned with the consensus for this week, but we think this will be the last cut of the cycle.

Our main reason is that we see risks on the upside for inflation. We forecast CPI at 2.9% in the fourth quarter of this year, and 2.4% in both the first and second quarters of 2026, which are all 0.2 percentage points above the RBNZ’s August projections. We see a risk of the RBNZ revising those projections higher at this meeting, which would underpin a more hawkish tone.

With non-tradable inflation still running at 3.7% YoY, the room to take real rates deeper into negative territory appears very limited in our view. The recent pick-up in RBNZ 2-year inflation expectations to 2.28% strongly suggests 2.25% is the right terminal rate.

Our estimates for NZ inflation and policy rate
 

Source: ING, RBNZ

Better growth picture ahead
 

We think New Zealand’s growth picture has room to improve. The Treasury reported this week that while there is no broad-based momentum for economic indicators to improve (which justifies this November cut), there are “welcome signs of new activity in the manufacturing sector with a boost in new orders supporting sentiment” (which argues for a more hawkish assessment).

Despite a 3% drop in exports to the US due to tariffs, exports to non-US markets are growing at an annual rate of 11%, more than offsetting the losses from the US. China remains a solid export destination, and the US-China trade deal should help reduce uncertainty in New Zealand by extension. We therefore retain a generally optimistic view on a growth recovery and stabilisation into the new year in New Zealand, especially with lower rates and stabilising migration supporting activity.

Upside risks for NZD
 

Our bottom line is that despite the fact that the new RBNZ Governor, Anna Breman (starting in December), has been a dovish-leaning member of the Riksbank, we currently don’t see the conditions for cuts beyond 2.25%. Accordingly, we don't expect that the RBNZ will signal any more easing in its updated rates projections this week. That should be read as a hawkish signal, even if the written guidance could retain some conditionality.

Markets are fully pricing in a 25bp cut at this November meeting, and a total of 42bp by May 2026. This means there is some decent room for hawkish repricing supporting the Kiwi dollar this week. While recent jitters in global risk sentiment have been the primary NZD driver of late, the underperformance throughout 2025 relative to G10 has been partly driven by the RBNZ’s dovish tendencies. The sense that a bottom in rates has been reached can, in our view, set the basis for a recovery in NZD.

We still expect a rebound above 0.570 by year-end in NZD/USD, and expect a strong first half of 2026 to follow.

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