New Zealand's central bank has lowered its official cash rate by 25 basis points to 2.25 percent, the lowest level since mid 2022. At the same time policymakers strongly hinted that the long easing phase is drawing to a close, noting that the economy is starting to stabilise after several weak quarters and that inflation risks now look more balanced.

The decision followed an aggressive series of cuts that delivered more than three percentage points of easing since 2024 in an effort to pull the country out of a shallow recession. In its latest statement the Reserve Bank of New Zealand said that future moves in the cash rate will depend on how growth and medium term inflation evolve, but projections show the policy rate broadly on hold through 2026.

Markets reacted quickly. The New Zealand dollar jumped as traders slashed expectations of further cuts and two year swap yields moved higher, signalling that investors now see the next big move in policy coming further into the future. Local economists described the tone of the statement as cautious rather than dovish and argued that the hurdle for another reduction is now significantly higher than before.

For currency traders the message is that shorting the kiwi purely on rate cut hopes has become more dangerous. As long as global risk sentiment holds up and other central banks such as the Federal Reserve and the Reserve Bank of Australia also move cautiously, the New Zealand dollar could find support on dips, especially against lower yielding currencies.