RBNZ to cut rates by 25bps, economists say more cuts possible after U.S. tariffs

WELLINGTON (Reuters) - New Zealand's central bank is expected to cut its official cash rate by 25 basis points to 3.50% on Wednesday and economists say the bank could make more cuts in 2025 as it reacts to U.S. tariffs and their potential global economic fallout.

All 31 economists in a Reuters poll expected the Reserve Bank of New Zealand to cut the cash rate by 25 basis points to 3.50% at its Wednesday meeting. The central bank has already cut by 175 basis points since August last year.

In February the bank outlined plans to cut the cash rate by 25 basis points in April and May if economic conditions evolved as they expected.

But last week, U.S. President Trump announced sweeping tariffs that have shocked markets, threatening a trade war and feeding expectations of a global recession. The U.S., which is New Zealand's second largest export market, hit the country with a 10% tariff. The Pacific Nation has said it will not retaliate.

Markets are now expecting the official cash rate to bottom out at 2.75%, compared to 3% in the middle of last week.

Bank of New Zealand Head of Research Stephen Toplis said in a note on Tuesday that the best thing that New Zealand's central bank could do was "keep a steady hand on the tiller," which meant following through with the 25 basis point cut it had suggested in February.

Toplis added, however, that central bank messaging was likely to change given recent events. The RBNZ's is the first central bank to hold a scheduled meeting since Trump announced the tariffs.

"Surely the Bank must acknowledge what is going on now and the uncertainty this brings. In so doing, we would not be surprised if its musings about where to next were left wide open," Toplis said.

New Zealand markets, along with global bourses, have slumped since Trump announced the tariffs. New Zealand's NZX-50 index is down 4.4% since Thursday, while the New Zealand dollar has dropped 4.1% to US$0.5560.

Westpac chief economist Kelly Eckhold said volatile markets needed to be monitored in case they created a sustained tightening in financial conditions that fed back into the economic outlook.

"For the RBNZ's part, they will see this as a reason to continue to cut the OCR (official cash rate) and retain an easing bias," he said in a note.

The direct impact of tariffs on New Zealand exports is expected to be limited. However, the RBNZ noted in its February Monetary Policy Statement (MPS) that tariffs would probably lower growth in the country's main trading partners including Australia and China, which would reduce demand for exports, and therefore economic growth in New Zealand over the medium term.

(Reporting by Lucy Craymer; Editing by Kate Mayberry)