According to market research, the Reserve Bank of New Zealand (RBNZ) will lower its official cash rate by 25 basis points to 3.50% at its Wednesday meeting, marking a cumulative reduction of 175 basis points since August last year. The market expects OCR to fall to 2.75% by the end of the year, lower than last week's mid-term forecast of 3.0%

The central bank stated in its monetary policy statement in February that if the economic situation meets expectations, it will cut interest rates once in April and once in May. But with Trump announcing tariffs last week, this prospect underwent a dramatic change.

The United States has imposed a 10% import tax on goods from multiple countries, including New Zealand. Although New Zealand has not retaliated, the increase in import costs for the United States, as its second largest export market, is bound to affect export performance.

The key concern of the central bank is that the economies of Asian countries and Australia may be slowed down by tariffs, which could drag down New Zealand's export demand and slow down its medium-term economic growth

The most important strategy of the central bank is to 'stabilize the steering wheel' and proceed with the planned 25 basis point interest rate cut this week. "- Stephen Toplis, Head of Research at the Bank of New Zealand

But Toplis also pointed out that as uncertainty intensifies, the central bank's forward guidance may "remain open".

NZD/USD has fallen 4.1% this week to 0.5560, reflecting investors' rapidly turning pessimistic expectations for global economic growth, with risk aversion dominating asset allocation.

If the volatility in the financial market continues, it may lead to a tightening of the financing environment, further affecting economic expectations. "- Kelly Eckhold, Chief Economist of Westpac Bank

Exports have not yet been directly impacted, but the central bank is highly vigilant about external risks. Although New Zealand's exports to the United States are not on the high tariff list, RBNZ mentioned in its February policy statement that slowing growth in major trading partners will suppress New Zealand's exports and GDP

This means that even if domestic factors remain stable, the external environment has already posed structural downside risks, increasing the space for future monetary policy easing.

Editor's viewpoint:

After the announcement of Trump's tariff policy, the Reserve Bank of New Zealand will become the world's first central bank to hold a meeting to respond. The expectation of this interest rate cut is clear, and the market focus will be on whether it will continue to cut interest rates in May and whether the central bank will lower its annual growth and inflation expectations

Whether the response strategy to global financial market fluctuations has become clearer, the New Zealand market has begun to price external shocks in advance. As a highly open economy, New Zealand's policy response may provide forward-looking signals for other countries.

If trade concerns continue to ferment, the Reserve Bank of Australia, the Bank of Canada, and the Bank of Korea may join the ranks of interest rate cuts in the second quarter. Global monetary policy may enter a new round of "loose restart" cycle.