New Zealand central bank cuts rates citing US tariffs

New Zealand’s central bank cut interest rates on Wednesday citing US trade tariffs, becoming one of the first to respond to the economic turmoil rippling through markets worldwide.

“Recent increases in tariffs and uncertainty about global trade policy have weakened the outlook for global economic activity,” the New Zealand Reserve Bank said as it cut borrowing costs by 25 basis points to 3.5 percent.

“Against this backdrop, the recently announced increases in tariffs in the United States, retaliation from several trading partners, and heightened geoeconomic uncertainty will have a significant negative impact on global growth,” it said.

Cutting the cash rate would help prop up New Zealand’s trade-exposed economy by stimulating domestic spending, it added.

New Zealand last month crawled out of a shallow economic recession.

It is the lowest New Zealand’s key interest rate has been since October 2022.

“They had to acknowledge the downside risks to global growth, the downside risks to inflation, the downside risks that have developed just in the last week,” Kiwibank chief economist Jarrod Kerr said.

“It’s one of those situations where the facts have changed. And therefore the position, I think, of central banks globally is changing quite rapidly,” he said.

The New Zealand dollar earlier in the day fell below 55 US cents – its weakest in around five years.

Isolated from markets and propped up by agricultural exports, New Zealand is heavily exposed to global trade chaos.

“The fact that the United States and China are going head-to-head here in what’s already an ugly trade war is going to influence our terms of trade, our ability to export,” said Kerr.