The RBNZ will take the stage for the last time this year on Wednesday (see our full preview). We’re expecting a 25bps cut to bring the cash rate down to 2.25%. The meeting will also mark Christian Hawkesby’s swansong as Governor of the RBNZ. Hawkesby passes the reins to Dr Anna Breman on December 1st. Though it’s not until February next year that she will make her mark on monetary policy.

A cut to 2.25% this week is perfectly priced by markets and requires little justification. The Kiwi economy still needs more support. Yes, the RBNZ has delivered a significant amount of easing. 300bps to be exact. But for the majority of this year, the cash rate remained at restrictive levels. It is only after the cut to 2.5% in October that policy moved beyond neutral ground and into more stimulatory territory.

We had long advocated for such a move to 2.5%. But the move came too little too late from the RBNZ. And the delay has cost us. The recovery we anticipated for this year stalled, activity lost momentum and Kiwi households and businesses have suffered further. All of which has put the Reserve Bank in a position of needing to do even more. They didn’t do enough, the economy stalled again, and now they’re having to do more to mop up the mess.

So why not another 50bp move? Why not, indeed. It’s certainly within the realms of possibility, and should be on the table for discussion by the RBNZ’s MPC. Another “surprise” 50bp move gets the cash rate to 2%, without the long wait until February’s decision. A 50bp move to 2% would clear the decks, and clean the slate for incoming Governor, Dr Anna Breman. The RBNZ’s mistakes over the past 2 years have been centred around the inability to recognise the recession, and an inability to respond to the recession after it became painfully clear.

Is 2.25% really going to be enough? We’d hope so. Is 2% required? Maybe. But why not get us there, cut with confidence, to fuel confidence. It’s just the sort of shock treatment the economy needs. So even if we’re not calling for it, and hope with fingers crossed that a 2.25% cash rate will do enough… we certainly like the idea to getting another outsized move to crank things up a bit. And if it works, you just start hiking again, a little earlier than expected.

Beyond the cut itself, attention will fall to the RBNZ’s set of refreshed forecasts and OCR track. Given the RBNZ has already delivered more than the previous track implied, and in October the RBNZ signalled further ‘reductions’, we’d expect a lower terminal rate with the RBNZ keeping the door open to more easing. And it's the move in the track which will drive and set markets up for the remainder of the year. See our COTW for more on the OCR track.

Along with setting the scene for rates, Wednesday’s RBNZ decision is also pivotal for the NZD. The Kiwi dollar has tracked decisively lower over the past few weeks but got battered last week. Risk-off sentiment coupled with fading expectations of further Fed rate cuts this year, saw the Kiwi dollar drop below 56c – back to the April lows. Dovish remarks from the New York Fed President, John Williams, on Friday has since helped the Kiwi stage a slight recovery back above 56c. But in its fragile state, the key to any sustained move for the Kiwi remains on the messaging out of the RBNZ on Wednesday.

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, an eventful week still led us back to where we started

“Although we ended up largely where we started (2 year unchanged, curve a tad steeper), all in all it was a reasonably eventful week in kiwi rates.

NIVIDIA earnings had financial markets on edge as everyone awaited the first sign of a wavering in the AI boom. The eventual beat in earnings against expectations supported risk sentiment and lifted yields. However, the mood soon soured after payrolls showed increase in unemployment and more cuts priced for the December FOMC meeting.

Domestically the highlight was the tap of the 2036s. Though well received by the market, featuring large offshore participation, it did create some volatility on the day. Understandable given the large amount of duration to be digested by the market. This saw rates sell off sharply on the day but was quickly unwound.

On the data front, nothing really to trouble the scorers. SPI and inflation expectations are contained. While PMI and PSI were consistent with a tepid recovery. With focus on RBNZ expect to see heightened activity in Kiwi market this week as is typical. RBNZ is nearly universally expected to deliver 25bps cut. Though there is a lot more uncertainty on guidance for future meetings with a neutral or wait and see bias likely to see a sharp sell off.” Matthew Crowder, Balance Sheet Manager – Treasury.

In currencies, it’s an important week for the Kiwi dollar with the MPS

“The RBNZ will release its final MPS for the year on Wednesday. Market consensus anticipates a 25 basis point cut, bringing the OCR to 2.25%. This move is already fully priced into the overnight indexed swap market and reflected in the NZD. As such, the rate adjustment itself is unlikely to have a significant impact on the currency; attention will instead focus on the accompanying statement.

We expect the RBNZ to signal some degree of flexibility, potentially leaving the door open for a further reduction to 2.00% if conditions warrant. This presents a delicate balancing act, as recent high-frequency data suggests early signs of recovery. Ideally, the terminal rate will settle at 2.25%, but the central bank is likely to maintain a cautious stance and preserve optionality for additional easing—consistent with current market pricing.

Should Wednesday’s statement adopt a more dovish tone, indicating a terminal rate closer to 2.00%, the NZD could face renewed downside pressure, with the 2025 low of 0.5486 potentially in play. Conversely, a more hawkish outlook could see the currency rebound toward 0.5750. Recent weakness in the NZD reflects broader market concerns, including the possibility that the Federal Reserve may refrain from further near-term easing. Reduced expectations for Fed rate cuts have supported the U.S. Dollar Index (DXY), which has returned to the 100 level. This trend was reinforced last week as the U.S. government shutdown delayed key data releases, and the Bureau of Labor Statistics was forced to cancel October data due to insufficient collection.

The NZD/AUD cross will also take direction from the MPS. Last week, the pair reached a modest high of 0.8727 before retreating toward support at 0.8650. Adding to the complexity, Australia’s CPI data is due this week, with expectations for inflation to ease to 3.4%. A softer print would likely support the cross. Current pricing suggests the Reserve Bank of Australia (RBA) may consider a rate cut in early 2026, but it is certainly not a given. Interest rate differentials are still a key consideration for the NZDAUD cross.” Mieneke Perniskie– Senior Dealer, Financial Markets.

Weekly Calendar

• Here at home, the RBNZ is set to announce its last policy decision for 2025. A 25bps cut to a 2.25% cash rate is widely expected and fully priced. The focus will be on what the RBNZ will say and signal for next year. The OCR track will have to be lowered as more has been delivered and signalled than the previous track implied. Following on from the October statement, the RBNZ will likely keep the door open to further rate cuts next year. See above for our preview.
• Across the Tasman, the first monthly print of the complete CPI data is due out this week. Headline inflation is expected to fall to 3.4%yoy from 3.5%yoy - easing but still above the RBA's 2-3% target band. Moving in the wrong direction, the trimmed mean inflation measure is expected to rise to 3% from 2.8%.
• In the UK, the hotly anticipated Autumn Budget is the highlight this week. It's been a volatile year for UK gilt yields, as investors have questioned the UK's fiscal credibility. Income tax increases are reportedly off the table, but UK Chancellor of the Exchequer Rachel Reeves may announce other revenue-raising measures.
• European market participants will also have minutes of the October ECB policy meeting to chew on. The ECB is largely at the end of its easing cycle, with the Governing Council emphasising the economy's resilience in the face of the rise in US tariffs as well as the economic tailwind that is Germany's increased defence spending. Despite this, the minutes will be picked apart to see if there is any remaining support for additional interest rate cuts.

See our 'Weekly Calendar' for more.