Reserve Bank governor says economy is past lowest point

Thursday, 21 August 2025

Reserve Bank governor Christian Hawkesby has told MPs “there's light at the end of the tunnel” and it believes the three months to the end of June marked the low point in the economic cycle.

The bank’s top brass appeared in front of Parliament’s Finance and Expenditure select committee today, the morning after the bank cut the official cash rate by 25 basis points to 3% and unexpected signalled an assumption of two more cuts to come.

But despite their generally upbeat tone, assistant government Karen Silk cautioned it remained to be seen whether “the green shoots really take off, or whether we continue to sogginess remain from here”.

Reserve Bank chief economist Paul Conway noted that the bank’s latest forecast suggested that the number of unemployed would grow by 3000 in the current quarter, with the official unemployment rate climbing to 5.3%, before reducing.

“It's been tough going for the New Zealand economy.”

Hawkesby said the central bank had been cutting interest rates “quite aggressively” for a little over a year and that it took a year to 18 months for the full effects of interest rate changes to flow through the economy.

But he suggested something might be a little bit different this time.

“What we're seeing is the reaction to our interest rate cuts so far being a bit slower than we had anticipated.

“We had ‘Liberation Day’ in early April and all the global policy uncertainty that's been surrounded by that, and the surprise for us since May has been what a prolonged impact that's had on business and consumer confidence in New Zealand.

That was “despite the fact that we are outside of those worst case scenarios that we talked about in May around how that could have escalated and got much worse”, he said.

The biggest surprise in Wednesday’s statement was that two of the six members of the Reserve Bank’s monetary policy committee voted for a 50-basis-point move that would have taken the OCR down to 2.75%.

But Hawkesby said the difference of opinion was just about the timing of cuts, rather than where the committee thought rates would bottom out.

“Those in favour of a 50-basis-point cut were [saying] ‘bring it forward, get more of a kick straight away, have more of a surprise and more of a ‘guard rail’ from the Reserve Bank.

“Those in favour of 25bp were acknowledging that the work we've done so far is still working its way through.”

Hawkesby appeared suggest the fact the bank held a vote was almost as impactful as actually bringing forward another 25bp of easing, while not suggesting that was a deliberate tactic.

“What matters is not just how we change the OCR on the day, but it's the projection, it's the fact that we had a vote; all of those things in totality will influence how much we can move the market, and what we saw yesterday was market rates falling quite significantly despite it only being ‘25’ .”

The risk of cutting by 50bp was that might have been misinterpreted by the market, he suggested.

“It's the communication around, ‘are you providing more stimulus, or are you just saying we're going to do more now and do less later?’

“Markets can get confused and think, ‘oh well, they're panicking’.