New Zealand's central bank lowered its benchmark interest rate by 50 basis points (bps) on Wednesday to 3.75% and indicated that additional rate cuts could follow as inflation slows and policymakers aim to stimulate the weakening economy.

Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr stated that the bank now anticipates a lower final rate compared to its November forecast, with two more rate cuts of 25 basis points each expected in April and May, depending on how the economy progresses.

The rate forecast aligned closely with market expectations and further emphasised the RBNZ's dovish position, especially when compared to the more cautious approaches taken by Australia and the US.

This move weakened the New Zealand Dollar and triggered a surge in 90-day bank bill futures, Reuters reports.

“If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR (Official Cash Rate) further through 2025,” the central bank said in its accompanying policy statement.

“We are looking at lowering the official cash rate a little bit quicker than what we projected back in November...We have our projection of the OCR being around 3% by year end,” said the governor during a press conference.

The RBNZ's updated forecast suggests rates will drop to 3.45% by June and further to 3.10% by the fourth quarter, lower than the November projection of 3.2%, due to inflation settling within the bank's 1%-3% target range.

Since August, the central bank has reduced rates by 175 basis points, providing a crucial boost for an economy recovering from a severe recession.

“The main message from today's Monetary Policy Statement is the lowering (again) of the Official Cash Rate track. The RBNZ are signalling more cuts, sooner,” stated Kiwibank chief economist Jarrod Kerr.

Furthermore, the central bank stated that it is well-prepared to address any future inflationary shocks but cautioned that global uncertainties, especially those stemming from US President Donald Trump's tariff policies, present risks to the economy.

“The RBNZ’s aggressive 50-basis point cut to 3.75% shows its determination to revive the economy, despite inflation risks and global uncertainties like Donald Trump's re-election as US President," said Junvum Kim, senior sales trader at Saxo Asia Pacific.

Following the cash rate announcement, several major banks in New Zealand, including Westpac, ASB Bank, Kiwibank, and Bank of New Zealand, reduced their mortgage rates.

Moreover, bill futures surged as markets priced in a 93% likelihood of a rate cut in April, with rates expected to reach around 3.0% by the end of the year, which is considered the lowest point of the cycle.

The kiwi Dollar dropped 0.3% to $0.5683 but later recovered, reaching $0.5707 at the time of writing.