New Zealand PM states the Reserve Bank should have trimmed the Official Cash Rate more points.

2025/08/25 14:25

New Zealand Prime Minister Christoper Luxon believes the Reserve Bank should have gone further, pushing for a 50-basis-point reduction in the OCR. In an interview with NewstalkZB host Mike Hosking, Luxon agreed the central bank ought to have taken a bolder approach.

Instead, in a 4-2 decision on Wednesday, the RBNZ trimmed the rate by 25 basis points, bringing it to 3%, its lowest since 2021. Nonetheless, the bank’s forecasts suggest the OCR will fall to 2.5% by December.

Luxon talked to RBNZ Governor Christian Hawkesby about taking a more aggressive approach

Ahead of the rate decision, Luxon said he spoke about the New Zealand economy with RBNZ Governor Christian Hawkesby. Pressed on whether he encouraged a bolder move to the governor, he said, “Pretty much, yes.” Though he added, “I can give my views, but I respect the independence of the Reserve Bank under legislation.”

New Zealand law goes to great lengths to protect central bank independence, and it is unusual for a prime minister or a cabinet minister to make public comments about rate decisions. Reflecting that principle, ECB President Christine Lagarde cautioned over the weekend that political meddling in monetary policy threatens to destabilize economies.

The RBNZ put the brakes on cuts in July, unsure how much new inflation pressures were building up at home and how the U.S. tariffs were rippling through the rest of the world. Last week, policymakers said the inflation picture was clearer, and with the New Zealand economy expected to have shrunk in the June quarter, there was more reason to cut rates. But Hawkesby sketched a patchy picture of the country, with provinces riding a rural economic renaissance while Auckland and Wellington crawl along.

New Zealand’s retail volumes increased 0.5% in the three months through June

According to Statistics New Zealand, the country’s retail sales have climbed in Q2, gaining 0.5% against economists’ forecasts for a 0.3% decrease. The stronger result suggests households are starting to respond to lower interest rates, giving fresh momentum to the economy.

Household spending has now increased for three straight quarters. Still, the Reserve Bank anticipated a 0.3% pullback in activity last week, which formed the basis for cutting the Official Cash Rate to 3% and a 2.5% projection for December.

Westpac senior economist Satish Ranchhod said the latest spending gains suggest a turning point. He commented, “While the retail sector is still confronting some tough trading conditions, we are starting to see signs that the long-awaited recovery is taking shape. That includes gains in discretionary areas. However, it is still a mixed picture, with spending in sectors like hospitality still being flat.”

Retail spending was led by a 4.6% jump in electrical goods, with furniture, floor coverings, and recreational items also seeing healthy gains. On the flip side, accommodation spending slipped 2.1%, while food and beverage purchases fell for the second quarter in a row.

Since last August, the Reserve Bank has chopped the cash rate by a hefty 250 basis points. Policymakers hope cheaper mortgages will put more money back into households’ pockets and keep spending ticking. Even so, officials caution that a softer job market could make people think twice before opening their wallets.

As previously reported by Cryptopolitan, New Zealand’s unemployment rate rose to 5.2% in Q2, the highest reading since the early post-COVID recovery in late 2020. The figure, a slight rise from the 5.1% in the first quarter, came in just below economists’ forecast of 5.3% but serves as a stark indication of growing fears of an economic slowdown.

Employment fell 0.1% in the quarter, in line with expectations, and is another indicator of waning momentum. Abhijit Surya, senior economist at Capital Economics, thinks the RBA will not be taking too much comfort from the small rise in unemployment, but will highlight the evidence of spare capacity building in the labour market.

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