08:07 AM EDT, 05/23/2025 (MT Newswires) -- UBS said it expects the Reserve Bank of New Zealand to cut by 25bps to 3.25% next week, which is in line with the consensus of market economists and money market pricing.

Some commentators believe that the RBNZ is also likely

to signal additional easing and revise down its cash

rate projection, but the bank doesn't see this for a few reasons.

First, in the government's recent budget, UBS noticed its

priorities have started to shift. The shift to a more "progrowth" agenda has only been in select areas like healthcare and defense, as well as in allowances for businesses to deduct 20% of a new asset's value in the first year.

In addition, further spending announcements are likely

ahead of the election in Q4 2026, wrote the bank in a note to clients.

Second, a nascent recovery in housing, improving PMIs, and rising milk prices should support consumer and business confidence.

Third, with most of the "reciprocal" tariffs now on hold, China's growth outlook is looking firmer, which should be favorable for New Zealand's domestic trade balance.

As such, UBS predicts a further rate cut of 25bps to a terminal rate of 3%.

The bank also expects NZDUSD to rise to 0.64 over 12 months and likes to sell downside at 0.58 or below.