RBNZ January Rate Cut: 50 Basis Points to 3.75%—Boosting Recovery Amid Rising Risks

Data Interpretation

Summary:

The Reserve Bank of New Zealand (RBNZ) has warned of risks from global trade frictions, geopolitical shocks, and U.S. tariff policies. It emphasized its readiness to respond flexibly to potential shocks to ensure medium-term inflation stability and economic resilience.

On February 19, 2025, the Reserve Bank of New Zealand (RBNZ) announced the outcome of its monetary policy meeting. The following is an interpretation based on publicly available data:

Building on the 125 basis points of rate cuts announced since mid-2024, the Official Cash Rate (OCR) was lowered from 4.25% to 3.75%. This move aims to reignite the stalled economy while cautioning against the increasing likelihood of international trade tensions, global growth slowdown, and geopolitical shocks.

Economic activity in New Zealand is showing signs of recovery, supported by lower interest rates and higher export revenues. However, potential GDP growth remains constrained due to persistent weakness in productivity gains and a decline in net migration. As a result, economic growth is expected to remain moderate, with global economic growth anticipated to stay subdued in the near term. The recent reduction in interest rates is expected to boost household consumption and encourage business investment. However, the full impact of these policy measures may take some time to materialize. The economic outlook remains aligned with the medium-term inflation target, providing confidence for the RBNZ to consider further reductions in the Official Cash Rate (OCR).

In recent months, New Zealand's inflation rate has declined to 2.2%, still near the midpoint of the target range. The central bank expects consumer price inflation to fluctuate in the short term due to the depreciation of the exchange rate and rising oil prices. In the coming months, inflation is projected to rise to 2.7% in the third quarter before falling back again. The RBNZ stated that it is fully capable of maintaining price stability over the medium term and addressing future inflationary shocks. However, uncertainties surrounding global tariff policies pose some risks to the economy.

Wage growth has slowed, consistent with the decline in labor demand and the reduction in CPI inflation. Employment levels and job vacancies have also declined, reflecting subdued economic activity. The labor market has weakened, with businesses reducing their demand for labor as economic conditions deteriorate. In the year to the December 2024 quarter, employment fell by 1.1%, and the unemployment rate rose to 5.1% in the December 2024 quarter. The labor market typically lags overall economic developments, and employment growth is expected to remain sluggish over the next year.

Near-term risks include a slowdown in GDP growth, while long-term risks involve U.S. tariff policies, which could potentially slow global economic growth. The RBNZ has stated that it is prepared to respond to any potential shocks and will take action as necessary to support the economy.

Reserve Bank of New Zealand Monetary Policy Statement

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Warren Takunda

Economic

A leaked draft of a second clean industry deal, prepared by the von der Leyen Commission, sets out key elements the European Commission deems essential to challenge the United States and China in the battle for global clean technology leadership.

“The ambition of the Clean Industry Deal is to make the EU a global leader in the circular economy by 2030,” according to the 22-page document seen by Euronews.

The plan says companies will be given “clear incentives to reduce carbon emissions within Europe.”

“A thriving new European industrial ecosystem for growth and prosperity” will be achieved by strengthening the six “business engines”, according to the text.

Affordable energy

The first is affordable energy, which is the subject of an action plan to be released alongside the International Development Conference on February 26.

The leaked message said the Commission would launch a pilot project for energy trading agreements for companies on the same day, in collaboration with the European Investment Bank.

Similar collaboration will be set up under the Network Manufacturing Package, which is specifically designed to address weaknesses in Europe’s transport networks that have been identified as obstacles to the electrification of transport and industry.

In both cases, the relevant amounts were left blank, indicating that the EU Executive Board has not yet agreed how much funding will be spent on these projects.

The plan also stresses the need to speed up the permitting process and simplify the gas market, while also offering recommendations on next year’s energy tariffs.

Stimulate demand

The second impetus is the creation of a “leading market,” which will be achieved in part through the upcoming Accelerated Decarbonization of Industries Act, already mentioned in von der Leyen’s policy priorities, which she has now promised to implement by the end of this year.

The EU will continue its efforts to build demand for hydrogen to replace fossil fuels in industrial processes. The Commission said it would “explain the rules for the production of low-carbon hydrogen in practice. ”

Other stimuli include measures to strengthen finance, increase circulation, access to essential raw materials, and strengthen global markets and international cooperation.

Finally, the vocational development center has acknowledged that there is a shortage of adequately trained workers in Europe and has promised to establish a skills union, which is due to be published on March 5, along with an action plan for European automakers.

The Commission is committed to its 90% emissions reduction target.

Greg van Elsen, who has published work on the Clean Industry Deal for Climate Action Network Europe, points out that the European Commission appears to be reluctant to compromise on its commitment to scientific advisers and propose a 90 percent reduction in greenhouse gas emissions by 2040.

The draft resolution echoes recent comments by von der Leyen, who stressed that Europe would “stay on course” on climate action.

“It is encouraging to see that the bill continues to move forward with the European Green Deal, which supports the 2040 climate target of reducing greenhouse gas emissions by 90 percent, accelerates the deployment of renewable energy and places renewables at the heart of the EU’s industrial strategy,” Van Elsen told Euronews.

He added that the bill “fails” to target energy savings or reduced resource use as a way to build a resilient economy.

“With the funding part lacking detail and ambition, the big question remains who will pay for it,” Van Elsen asks. “While the outlook seems to be positive overall, there are still several key issues that remain unanswered.”

Source: Euronews

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Statistics Canada

Data Interpretation

On February 18th, Statistics Canada released the January CPI report:

The unadjusted CPI rose 1.9% year-over-year (YoY) in January, up from 1.8% in December, and increased 0.1% month-over-month (MoM), compared to a decline of 0.4% in December.

The Bank of Canada's core CPI increased 2.1% YoY in January, up from 1.8% in December, and rose 0.4% MoM, compared to a decline of 0.3% in December.

The seasonally adjusted core CPI rose 0.3% YoY in January, unchanged from the previous month, and increased 2.2% MoM, up from 2.0% in December.

According to the report, the overall CPI has remained at or below the Bank of Canada's 2% target for six consecutive months. However, the 1.9% YoY CPI growth indicates a gradual economic recovery from the post-pandemic period. The 0.1% MoM increase in January also suggests a continued weakening of underlying inflationary pressures. Although the January CPI growth rate was higher than December's 1.8%, it remains well below the peak levels seen in recent years.

On a component basis, the modest rise in inflation was primarily driven by increases in gasoline and natural gas prices, which offset the downward pressure on prices resulting from the sales tax holiday. Energy prices in Canada surged by 5.3% YoY in January, following a 1.0% increase in December. Specifically, gasoline prices rose 8.6% YoY, while natural gas prices, which fell 5.5% in December, increased 4.8% YoY in January. The largest provincial increase in natural gas prices was seen in British Columbia, where prices rose by 12.8%. The sales tax holiday, implemented by the government, put downward pressure on the prices of food, beverages, restaurant meals, and children's clothing. Food prices fell 0.6% YoY in January, marking the first annual decline since May 2017.

The growth in housing costs, including mortgage interest and rental rates, continued to slow. In January, mortgage interest costs rose 10.2% YoY, down from 11.7% in December. Rental prices increased 6.3% YoY, compared to 7.1% in December. This represents the first MoM decline since August 2022, and market data suggests further potential declines in the future. However, housing remains the largest driver of overall inflation.

The data highlight a "dual-track" inflation scenario, with the rebound in energy prices offsetting policy-driven declines in consumer prices. Core inflation remains sticky but is trending weaker. The BOC will need to carefully balance the uncertainties of the external trade environment, including potential U.S. tariff threats, with its domestic price stability objectives. A gradual easing cycle may be initiated in the second quarter.

Canada CPI for January

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Glendon

Commodity

(Feb 19): London copper eased on Wednesday as US President Donald Trump's threat to impose 25% tariffs on automobiles and semiconductor chips raised concerns of about metal demand.

Three-month copper on the London Metal Exchange (LME) CMCU3 eased 0.6% to US$9,418 a metric ton by 0423 GMT.

Trump said on Tuesday he intends to impose auto tariffs "in the neighbourhood of 25%" and similar duties on semiconductors and pharmaceutical imports, the latest in a series of measures threatening to upend international trade.

He said sectoral tariffs on pharmaceuticals and semiconductor chips would also start at "25% or higher", rising substantially over the course of a year.

"Trump is actually considering implementing further tariffs on auto... which could lead to a slowdown in global growth and may result in disruptions to the global supply chain. Such disruptions could cause copper to experience some weakness going forward," said Kelvin Wong, OANDA's senior market analyst, Asia Pacific.

Citi said Trump is more motivated to impose tariffs on copper in his second term because of the metal's growing importance to key emerging global competitive industries like energy transition and artificial intelligence.

On the geopolitical front, Trump's administration said on Tuesday it had agreed to hold more talks with Russia on ending the war in Ukraine after an initial meeting that excluded Kyiv, a departure from Washington's previous approach that rallied US allies to isolate Russian President Vladimir Putin.

Source: Theedgemarkets

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Justin

Forex

Economic

New Zealand Dollar initially weakened following RBNZ’s 50bps rate cut today, but quickly regained ground as Governor Adrian Orr indicated that the pace of easing will slow in the coming months. Orr suggested that the central bank is likely to implement just more 25bps cuts, in April and May, provided that economic conditions unfold as expected. However, the Kiwi’s upside remains limited, as RBNZ revised its terminal rate forecast downward to 3.1% by year-end, slightly below November’s projection of 3.2%.

Technically, we’d maintain the view that AUD/NZD’s choppy rise from 1.0940 is a corrective move. So upside should be limited by 1.1177 resistance to bring near term reversal. Break of 1.1071 support will argue that the pattern from 1.1177 has started the third leg, and should decline towards 1.0940 support next.

Outside of NZD-driven moves, the broader forex market remains subdued, with a lack of major catalysts. Dollar is the weakest performer of the day so far, as the momentum from this week’s recovery has faded. Traders are now looking ahead to FOMC minutes, though they are unlikely to provide new insights, instead reaffirming that Fed remains cautious and in no hurry to cut rates again.

British Pound is also under pressure, ranking as the second weakest currency, as investors await the release of UK CPI data. A hot inflation print could diminish expectations for a consecutive BoE rate cut in March, potentially offering some relief to the currency. Swiss franc rounds out the three weakest performers, showing broad softness.

On the stronger side, New Zealand Dollar leads the market. Yen follows, benefiting from continued speculation over future BoJ policy hikes, while the Australian Dollar also holds firm. Euro and Canadian Dollar are positioning in the middle.

In Asia, at the time of writing, Nikkei is down -0.38%. Hong Kong HSI is down -0.28%. China Shanghai SSE is up 0.54%. Singapore Strait Times is up 0.11%. Japan 10-year JGB yield is up 0.002 at 1.439. Overnight, DOW rose 0.02%. S&P 500 rose 0.24%. NASDAQ rose 0.07%. 10-year yield rose 0.072 to 4.544.

RBNZ cuts by 50bps, signals further easing through 2025

RBNZ cut the Official Cash Rate (OCR) by 50bps to 3.75%, as widely expected, while maintaining a clear easing bias.

The central bank stated that “if economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.” According to the latest projections, the OCR is expected to decline to 3.1% by year-end and remain at that level until early 2028.

RBNZ acknowledged that economic activity remains subdued, though it expects growth to recover in 2025, driven by lower interest rates encouraging spending. However, elevated global economic uncertainty is likely to weigh on business investment. The bank also noted that inflation is expected to be volatile in the near term, influenced by a weaker exchange rate and higher petrol prices.

Regarding global risks, the RBNZ flagged concerns and warned that higher global tariffs could slow growth in key trading partners, dampening demand for New Zealand exports and weakening domestic economic momentum over the medium term.

However, the impact on inflation is “ambiguous”, depending on factors such as trade diversion, supply-chain adjustments, and financial market reactions.

Australian wages growth slow 0.7% qoq, pressures easing

Australia’s wage price index rose 0.7% qoq in Q4, marking a slowdown from 0.9% qoq and missing expectations of 0.8% qoq. This matches the lowest quarterly growth since March 2022, reinforcing signs that wage pressures are easing, albeit still elevated.

On an annual basis, wages increased 3.2% yoy, making it the slowest pace since Q3 2022. Private sector wage growth came in at 3.3% yoy, the weakest since Q2 2022. Public sector wages rose 2.8% yoy, falling below 3% for the first time since Q2 2023.

BoJ’s Takata: Gradual policy shifts should continue beyond January hike

BoJ Board Member Hajime Takata emphasized the need for the central bank to continue to “implement gear shifts gradually, even after the additional rate hike decided in January 2025”, to mitigate the risk of rising prices and financial market overheating.

Takata noted in a speech today that as “positive corporate behavior” persists, BoJ should consider a “further gear shift” in policy.

He highlighted three key risks that could drive prices above BoJ’s baseline scenario: a stronger wage-price cycle, inflationary pressures from domestic factors, and market volatility, especially in the exchange rates, stemming from a recovery in the US economy.

Nevertheless, due to uncertainties surrounding the US economy and the challenge of identifying the neutral interest rate, Takata advocated for a “vigilant approach”.

Japan’s trade deficit widens as imports surge, exports to China drop

Japan’s trade deficit expanded sharply in January, reaching JPY -2.759T, the largest shortfall in two years, as imports surged 16.7% yoy, far exceeding the expected 9.3% yoy gain.

Meanwhile, exports rose 7.2% yoy, falling slightly short of the 7.7% yoy forecast, with strong shipments to the U.S. (+18.1% yoy) offset by a -6.2% yoy decline in exports to China.

On a seasonally adjusted basis, exports declined -2.0% mom to JPY 9.253T, while imports climbed 4.7% mom to JPY 10.109T, leading to a JPY -857B trade deficit.

Looking ahead

UK CPI is the main focus in European session. EUrozone will release current account. Later in the day, main focus is on FOMC minutes while US will also publish building permits and housing starts.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6335; (P) 0.6352; (R1) 0.6368;

Intraday bias in AUD/USD stays neutral for consolidations below 0.6373 temporary top. Rebound from 0.6087 is seen as a correction to the fall from 0.6941. In case of another rise, upside should be limited by 38.2% retracement of 0.6941 to 0.6087 at 0.6413. On the downside, break of 0.6234 support will suggest that the rebound has completed as a correction, and turn bias back to the downside for retesting 0.6087 low. Nevertheless, sustained break of 0.6413, will pave the way back to 61.8% retracement at 0.6615.

In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6504) holds.

Economic Indicators Update

GMT	CCY	EVENTS	ACT	F/C	PP	REV
21:45	NZD	PPI Input Q/Q Q4	-0.90%	1.40%	1.90%
21:45	NZD	PPI Output Q/Q Q4	-0.10%	1.10%	1.50%
23:50	JPY	Machinery Orders M/M Dec	-1.20%	0.30%	3.40%
23:50	JPY	Trade Balance (JPY) Jan	-0.86T	-0.24T	-0.03T	-0.22T
00:30	AUD	Wage Price Index Q/Q Q4	0.70%	0.80%	0.80%	0.90%
01:00	NZD	RBNZ Rate Decision	3.75%	3.75%	4.25%
07:00	GBP	CPI M/M Jan		-0.30%	0.30%
07:00	GBP	CPI Y/Y Jan		2.80%	2.50%
07:00	GBP	Core CPI Y/Y Jan		3.70%	3.20%
07:00	GBP	RPI M/M Jan		-0.10%	0.30%
07:00	GBP	RPI Y/Y Jan		3.70%	3.50%
07:00	GBP	PPI Input M/M Jan		0.70%	0.10%
07:00	GBP	PPI Input Y/Y Jan		-0.50%	-1.50%
07:00	GBP	PPI Output M/M Jan		0.20%	0.10%
07:00	GBP	PPI Output Y/Y Jan		0.10%	0.10%
07:00	GBP	PPI Core Output M/M Jan			0%
07:00	GBP	PPI Core Output Y/Y Jan			1.50%
09:00	EUR	Eurozone Current Account (EUR) Dec		30.2B	27.0B
13:30	USD	Building Permits Jan		1.45M	1.48M
13:30	USD	Housing Starts Jan		1.39M	1.50M
19:00	USD	FOMC Minutes

Source: ACTIONFOREX

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Alex

Economic

Oil prices edged higher on Wednesday amid oil supply disruptions in the US and Russia and as markets awaited clarity on the Ukraine peace talks.

Brent crude futures LCOc1 gained 20 cents, or 0.3% at US$76.04 a barrel at 0146 GMT, climbing for a third day.

US West Texas Intermediate crude futures CLc1 for March rose 23 cents, or 0.3%, to US$72.08 a barrel, up 1.7% from the close on Friday after not settling on Monday because of the Presidents' Day public holiday. The March contract expires on Thursday and the more active April contract gained 0.3% to US$72.04.

Russia said oil flows through the Caspian Pipeline Consortium (CPC), a major route for crude exports from Kazakhstan, were reduced by 30%-40% on Tuesday after a Ukrainian drone attack on a pumping station. A 30% cut would equate to the loss of 380,000 barrels per day of supply to the market, according to Reuters calculations.

Meanwhile, cold weather threatened US oil supply, with the North Dakota Pipeline Authority estimating that production in the country's No 3 producing state would be down by as much as 150,000 bpd because of the cold.

US President Donald Trump's administration said on Tuesday it had agreed to hold more talks with Russia on ending the war in Ukraine. A deal could ease or help remove sanctions that have disrupted the flows of Russian oil shipments.

Israel and Hamas will also begin indirect negotiations on a second stage of the Gaza ceasefire deal, officials said on Tuesday.

However, Trump said on Tuesday he intends to impose auto tariffs "in the neighbourhood of 25%" and similar duties on semiconductors and pharmaceutical imports. Tariffs could raise prices for consumer products, weaken the economy and reduce demand for fuel.

Source: Theedgemarkets

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Cohen

Russia-Ukraine Conflict

Political

Economic

Forex

The US dollar held firm on Wednesday on the back of tariff concerns and tense Russia-Ukraine negotiations, while the New Zealand dollar slid after the central bank delivered a super-sized interest rate cut.

The Reserve Bank of New Zealand reduced its benchmark rate by 50 basis points to 3.75% on Wednesday as widely expected. The central bank has now cut rates by 175 basis points since August as the central bank races to boost a sluggish economy and curb rising unemployment.

The kiwi was last down 0.3% at US$0.5687 following the decision and bank commentary that suggested more cuts were likely.

In the broader market, investors sized up the latest note in US President Donald Trump's tariff crescendo and uncertainty after initial Russia-Ukraine peace talks finished without Kyiv or Europe at the table.

A majority of economists polled by Reuters this month expect another 50-basis-point cut in April.

Ukraine President Volodymyr Zelenskiy said no peace deal could be made behind his back. He postponed his visit to Saudi Arabia planned for Wednesday until March 10 to avoid giving "legitimacy" to the US-Russia talks.

Russia hardened its demands, notably insisting it would not tolerate the Nato alliance granting membership to Kyiv.

The Trump administration said on Tuesday it agreed to hold more talks with Russia on ending the war in Ukraine.

Hopes of a peace agreement buoyed the euro to a two-week high last week, but the EU bloc currency has slid in recent days. It was last 0.03% lower at US$1.0442.

"The euro (is) a little unsettled by the clear divisions between the US and Europe regarding the war in Ukraine," said Sean Callow, senior FX analyst at InTouch Capital Markets.

The greenback shot up on Tuesday, helped by euro softness, but remains not far off a two-month low of 106.56 touched on Friday despite more tariff pledges.

Trump said on Tuesday he intends to impose auto tariffs "in the neighborhood of 25%" and similar duties on semiconductors and pharmaceutical imports.

"So long as Trump is viewed as the boy who cried wolf on tariffs, chunky USD long positions will come under pressure," Callow said.

Trump has unleashed a steady crush of levies and tariff threats in the first month of his presidency, fuelling uncertainty about the impact both abroad and domestically.

Investors were awaiting the release of minutes of the Federal Reserve's January meeting due later in the day for clues on how policymakers are weighing the risk of a global trade war.

Markets have priced in about 35 basis points of cuts for 2025.

The dollar index =USD, which measures the greenback against a basket of rivals, rose 0.04% to 107.04.

The yen strengthened 0.05% to 152 per dollar. Japan's solid October-December GDP data on Monday, coupled with recent strong inflation, has bolstered rate hike bets.

Prospects of a rate hike at the Bank of Japan's July meeting are growing but questions remain about the pace and extent of continued tightening.

The spotlight will be on board member Hajime Takata, who is scheduled to give remarks on Wednesday, and national CPI data released on Friday.

Sterling was flat at US$1.2613 after brushing a two-month high of US$1.2641 in early trade on Wednesday. An inflation reading for the UK is scheduled later on Wednesday, following Tuesday's data showing accelerating British wage growth.

The Australian dollar ticked down 0.07% to US$0.63495 after data showed domestic wages rose at the slowest annual pace in more than two years in the fourth quarter.

The Reserve Bank of Australia cut rates as expected on Tuesday but cautioned on further easing.