The Reserve Bank of New Zealand (RBNZ) lowered its benchmark interest rate on Wednesday, in line with expectations, and indicated increased willingness to ease borrowing costs further amid economic pressures from sluggish demand and rising trade barriers.

The central bank became the first in the region to review monetary policy following the sweeping US import tariffs introduced last week, which have shaken global markets and intensified recession concerns for policymakers.

The RBNZ lowered the benchmark interest rate by 25 basis points to 3.50%, in line with market expectations, reinforcing economists' views that monetary policy may ease further than previously anticipated, Reuters reports.

According to the meeting minutes, the Committee agreed that a 25-basis point cut in the official cash rate (OCR) aligned with their objective of ensuring low and stable inflation.

“The recently announced increases in global trade barriers weaken the outlook for global economic activity. On balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand,” according to the central bank.

“As the extent and effect of tariff policies become clearer, the Committee has scope to lower the OCR further as appropriate,” the minutes added.

All 31 economists surveyed in a Reuters news agency poll had predicted the rate cut.

Following the decision, the New Zealand Dollar climbed 0.3% to $0.5550, rebounding from a five-year low.

Markets are now pricing in a 95% probability of another cut in May, with expectations for rates to fall to 2.67% by the end of 2025.

Furthermore, Capital Economics described the RBNZ’s statement as notably dovish, suggesting that additional easing is likely in the coming months.

“We think the Bank will ultimately loosen policy settings to a greater degree than most are currently predicting,” it continued.

The RBNZ statement also noted that keeping consumer price inflation near the midpoint of its 1% to 3% target range positions the Committee well to respond effectively to future economic developments.

Wednesday’s rate cut marked the RBNZ’s first monetary policy decision under new Governor Christian Hawkesby, who stepped into the role after Adrian Orr’s unexpected resignation in March.

New Zealand, which has lowered interest rates by a total of 200 basis points since August, joins a growing number of central banks worldwide beginning to ease policy as inflation subsides. However, mounting fears of a global economic slowdown are adding to their challenges.