Lowering interest rates further is a high hurdle! Reserve Bank of New Zealand Governor strengthens signal of the end of loose monetary policy.

New Zealand Reserve Bank Governor Christian Hawkesby said on Thursday that the threshold for further interest rate cuts is quite high. This statement reinforces the signal that the loose monetary policy cycle of the central bank may have ended. Hawkesby said, "There needs to be significant changes in economic prospects to prompt further interest rate cuts," a judgment that is consistent with their new forecasts. He said, "Our baseline forecast indicates that it is reasonable to maintain interest rates unchanged for the whole of next year. Our forecast trajectory remains stable, giving us some time to digest and observe the developments in various situations." It is reported that the Monetary Policy Committee of the Reserve Bank of New Zealand cut the official cash rate (OCR) by 25 basis points to 2.25% on Wednesday, the lowest level in three years, to support the emerging signs of economic recovery. This outcome is in line with the predictions of most economists. The Reserve Bank of New Zealand stated, "The Committee noted that lowering the OCR will help support consumer and business confidence and mitigate the risk of the economic recovery rate being lower than necessary to achieve the inflation target. Future adjustments to the OCR will depend on the evolution of medium-term inflation and economic prospects." At the same time, the latest forecasts from the Reserve Bank of New Zealand show that the likelihood of another 25 basis point rate cut next year is low. The forward guidance from the Reserve Bank of New Zealand indicates that the average OCR is expected to drop to 2.2% in the second quarter of next year, implying a 20% chance of another rate cut. The central bank predicts that by the end of 2026, this benchmark rate will be 2.28%. Since August last year, the Reserve Bank of New Zealand has cumulatively cut interest rates by 325 basis points. Hawkesby said that the Reserve Bank of New Zealand has reached a stage where the "door to continuously cutting interest rates and keeping the door open for further cuts" is no longer consistent with pushing inflation back to the 2% target. He said that such a policy stance "would expose you to the risk of inflation and inflation expectations stubbornly staying at higher levels, lingering around 3% for a long time." Data shows that New Zealand's inflation rate rose to 3% in September, at the upper end of the Reserve Bank of New Zealand's target range of 1-3%, but is expected to slow to around 2% by the mid-2026. In addition, policymakers are optimistic about the economic prospects of New Zealand, predicting that the average annual growth rate will reach 2.8% in the year ending March 2027, as interest rate cuts will ultimately stimulate domestic spending. Hawkesby's nearly seven-year term at the Reserve Bank of New Zealand (serving as Governor for the past nine months) will end on December 1, at which point he will be succeeded by Anna Breman. When asked about his future plans, Hawkesby said that he will take a break for a period of time during the three-month restraint period. He said, "I have worked very hard in this important position for a year, focusing on successfully completing the tasks. My next priority is to rest well in the summer and beyond, not thinking about the next thing, and relaxing as much as possible."