Recent policy easing has had a limited impact, with confidence levels remaining subdued. The Reserve Bank of New Zealand (RBNZ) Governor noted a slower-than-expected response to recent interest rate cuts.
Global uncertainties have affected both business and consumer confidence in New Zealand. Tariffs continue to pose risks, as noted by RBNZ’s Assistant Governor, who criticised their existence.
New Zealand House Prices
House prices in New Zealand are projected to remain unchanged for at least the next year, according to the RBNZ Chief Economist. The persistence of increased tariffs and trade barriers has created a negative demand shock globally, explained the RBNZ Governor.
Inflation in New Zealand is currently under control, according to the RBNZ Governor. He stated the economy is nearing the end of the inflation process.
The Reserve Bank is signaling that further easing could be on the way because its recent rate cuts have not stimulated the economy as hoped. Business confidence remains low, with the latest ANZ-Roy Morgan survey for August showing a drop to 81.5, well into pessimistic territory. This suggests the bank may need to act more forcefully to achieve its goals.
Given this outlook, we should position for lower interest rates in the coming weeks. This could involve using interest rate swaps where we receive the floating rate, anticipating that the official cash rate will be cut further. These positions will become more profitable if the central bank delivers the “substantial kick” it has mentioned.
Impact on the New Zealand Dollar
This dovish stance makes the New Zealand dollar look less attractive compared to other currencies. We should consider using options to bet on a weaker kiwi, such as buying NZD/USD put options. This strategy allows us to profit from a potential depreciation while limiting our downside risk.
The projection of flat house prices for the next year removes a key source of domestic inflation, giving the RBNZ more room to act. Recent Real Estate Institute of New Zealand data from July 2025 supports this, showing median house prices nationwide were down 0.5% from the previous month. A cool housing market means the bank can focus entirely on stimulating weak business investment and consumption.
With inflation considered under control, the bank’s primary focus is now on external threats like trade tariffs. The last quarterly CPI data showed inflation at just 0.4% for the quarter, bringing the annual rate down to 2.1%, which is in the lower half of the target band. These global uncertainties create a negative demand shock that the RBNZ will feel compelled to counteract with looser monetary policy.
We have to remember the bank’s aggressive policy stance during the post-pandemic slowdown of 2023-2024. That history shows a willingness to make significant moves when faced with prolonged economic weakness. If confidence doesn’t rebound quickly, we should anticipate that another significant rate cut is a very real possibility before the end of the year.
