Hit The Snooze Button; The RBNZ Holds The Cash Rate At 3.25%; And Where Have The Migrants Gone?
While the 90day pause on tariffs has been extended August 1st, countries likely spent the last week checking their post boxes as Trump mailed out letters outlining new reciprocal tariff rates.
Our COTW breaks down May's migration data, where annual net inflows dropped to an 18-month low. Arrivals remain below long-term averages, while record numbers of Kiwi continue to head offshore
Here's our take on current events
Reflecting on the week that was, it was a less exciting week than what could have been. The RBNZ hit the snooze button, and market traders went to sleep. The cash rate was kept unchanged at 3.25%, no surprise. It was the first pause since the cutting cycle commenced in August last year (see our full review here).
The key takeaway from the meeting though is that the RBNZ's bias still leans towards further easing. We're still on the trajectory for lower rates. As the RBNZ put it 'If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further.'
From our perspective, and even the RBNZ's, the risks to the medium-term inflation outlook remain tilted to the downside. The RBNZ reaffirmed that while inflation is expected to rise toward the top of its 1–3% target band over the current and coming quarter, it still sees inflation staying within the band and returning to around 2% by early 2026. We, meanwhile, remain a little more bearish and see risks that inflation undershoots 2% in the medium term.
So, given that monetary policy is set with a medium-term horizon, and medium-term inflation looks set to remain contained, it raises the question: why pause?
If it had been up to us, we would have cut last week. And we'd cut again in August. But for now, the RBNZ have decided to take a wait and see approach. Waiting for what? Well, ' Some members emphasised that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.' So, the next few data releases will be carefully picked apart. Of note will be the Inflation release next Monday, along with labour market and inflation expectations data in August.
It's not just the RBNZ taking a wait-and-see approach. The RBA surprised markets last week by keeping rates unchanged, defying expectations for a 25bps cut to 3.60%. In holding steady, the RBA cited a still-tight labour market. But much like the RBNZ, the RBA ultimately signalled it has time to wait and assess how inflation evolves, with US tariff developments.
Last week we got word that Trump's 90-day pause would be extended to the 1st of August. At the same time, we saw a number of countries receive letters from the White House with new reciprocal tariff rates. For some countries, the newly prescribed rate comes in lower than their 'liberation day' rate, though still largely elevated. While for others, the rate remains unchanged. But for Canada, Mexico, and the EU, tensions have re-escalated. Trump is now set to raise tariffs on Canada to 35%, while threatening hikes of up to 30% for both the EU and Mexico. He's also made it clear that any retaliation will be met with even higher tariffs.
Still, as we've come to expect, nothing is set in stone. And once again we're left waiting, now until August 1st.
Chart of the Week: Our migration cooldown deepens.
The month of May saw a seasonally adjusted 1,530 net inflow of permanent and long-term migrants. It's greater than the 1,090 net gain in April. But over the year, net migration has fallen to 14,809, the lowest annual net inflow since November 2022. That's around 120k below the record-breaking peak in October 2023. And migration is well below the historical average of a 20k net gain. The cooldown helps explain the weakness in the housing market and consumer demand. The net inflow may drop below 14k, because net inflows have averaged just 1,140 per month over the last three months.
We're still seeing a record number of Kiwi fleeing the nest, at 71.2k departures in the year to May 2025. And with Kiwi arrivals sitting below long-term averages, the net outflow remains at record-highs. No surprises, Australia has been the biggest beneficiary. As Stats NZ estimates, of the 69,300 migrant departures of NZ citizens to all countries in 2024, 58% were to Australia. Net flow of non-NZ citizens remains large at 61k, but has continued to slow, and is down 100k from the peak.
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Hit The Snooze Button; The RBNZ Holds The Cash Rate At 3.25%; And Where Have The Migrants Gone?
The RBNZ and RBA both hit the snooze button, leaving cash rates unchanged. One surprised markets, the other didn't. Amid still high global uncertainty, the common theme of 'wait and see' is prevailing amongst central banks. While the 90day pause on tariffs has been extended August 1st, countries likely spent the last week checking their post boxes as Trump mailed out letters outlining new reciprocal tariff rates. Our COTW breaks down May's migration data, where annual net inflows dropped to an 18-month low. Arrivals remain below long-term averages, while record numbers of Kiwi continue to head offshore Here's our take on current events Reflecting on the week that was, it was a less exciting week than what could have been. The RBNZ hit the snooze button, and market traders went to sleep. The cash rate was kept unchanged at 3.25%, no surprise. It was the first pause since the cutting cycle commenced in August last year (see our full review here). The key takeaway from the meeting though is that the RBNZ's bias still leans towards further easing. We're still on the trajectory for lower rates. As the RBNZ put it 'If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further.' From our perspective, and even the RBNZ's, the risks to the medium-term inflation outlook remain tilted to the downside. The RBNZ reaffirmed that while inflation is expected to rise toward the top of its 1–3% target band over the current and coming quarter, it still sees inflation staying within the band and returning to around 2% by early 2026. We, meanwhile, remain a little more bearish and see risks that inflation undershoots 2% in the medium term. So, given that monetary policy is set with a medium-term horizon, and medium-term inflation looks set to remain contained, it raises the question: why pause? If it had been up to us, we would have cut last week. And we'd cut again in August. But for now, the RBNZ have decided to take a wait and see approach. Waiting for what? Well, ' Some members emphasised that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.' So, the next few data releases will be carefully picked apart. Of note will be the Inflation release next Monday, along with labour market and inflation expectations data in August. It's not just the RBNZ taking a wait-and-see approach. The RBA surprised markets last week by keeping rates unchanged, defying expectations for a 25bps cut to 3.60%. In holding steady, the RBA cited a still-tight labour market. But much like the RBNZ, the RBA ultimately signalled it has time to wait and assess how inflation evolves, with US tariff developments. Last week we got word that Trump's 90-day pause would be extended to the 1st of August. At the same time, we saw a number of countries receive letters from the White House with new reciprocal tariff rates. For some countries, the newly prescribed rate comes in lower than their 'liberation day' rate, though still largely elevated. While for others, the rate remains unchanged. But for Canada, Mexico, and the EU, tensions have re-escalated. Trump is now set to raise tariffs on Canada to 35%, while threatening hikes of up to 30% for both the EU and Mexico. He's also made it clear that any retaliation will be met with even higher tariffs. Still, as we've come to expect, nothing is set in stone. And once again we're left waiting, now until August 1st. Chart of the Week: Our migration cooldown deepens. The month of May saw a seasonally adjusted 1,530 net inflow of permanent and long-term migrants. It's greater than the 1,090 net gain in April. But over the year, net migration has fallen to 14,809, the lowest annual net inflow since November 2022. That's around 120k below the record-breaking peak in October 2023. And migration is well below the historical average of a 20k net gain. The cooldown helps explain the weakness in the housing market and consumer demand. The net inflow may drop below 14k, because net inflows have averaged just 1,140 per month over the last three months. We're still seeing a record number of Kiwi fleeing the nest, at 71.2k departures in the year to May 2025. And with Kiwi arrivals sitting below long-term averages, the net outflow remains at record-highs. No surprises, Australia has been the biggest beneficiary. As Stats NZ estimates, of the 69,300 migrant departures of NZ citizens to all countries in 2024, 58% were to Australia. Net flow of non-NZ citizens remains large at 61k, but has continued to slow, and is down 100k from the peak.
