New Zealand retailers are welcoming the recent cash rate cut by the Reserve Bank, slashing the rate by 25 basis points to a three-year low of 3 per cent.
This is 60 basis points lower than Australia’s official cash rate.
Retail NZ hopes the cash rate cut will improve consumer confidence in the lead up to Christmas 2025, which should in turn help retailers that are suffering amid a downturn in sales across the sector.
“A turnaround in the economy can't come soon enough for the retail sector, so we are delighted at the Reserve Bank’s decision today to cut the OCR to 3 per cent,” Retail NZ CEO Carolyn Young said.
The Reserve Bank is also signalling that there may be scope to lower the OCR further, if medium-term inflation pressures continue to ease as expected.
According to the RBNZ, tradables inflation has increased. This is mostly due to higher prices for food and things like overseas accommodation and streaming services. The RBNZ expects tradables inflation to fall next year.
Non-tradables inflation – for which local retailers would be included – has continued to decline. Insurance, rents, and building costs are increasing at a slower rate, the RBNZ noted. But higher administered prices, such as council rates and vehicle rego fees, are keeping inflation higher.
“Inflation is near the top of our 1 to 3 per cent target range. We expect inflation to decrease next year. For example, prices for electricity and dairy are unlikely to continue increasing as much as they have recently.”
The RBNZ further noted that economic growth has been uneven across industries.
“Higher dairy and beef prices are boosting the incomes of farmers,” the bank reported. “However, industries that sell mainly to New Zealanders, like retail and construction, have been struggling. Unemployment has continued to increase.
“Lower interest rates are encouraging households to spend more and businesses to invest. We expect the economic recovery to broaden and businesses to hire more people as demand increases.”
Young said consumer confidence remains fragile, with recent results from Roy Morgan showing the index in a zig zag pattern for the last few months.
“Discretionary spending is being squeezed by persistent inflation in essentials like food, electricity and insurance,” Young said. “We have yet to see the boost expected from lower interest rates as more consumers re-fix their mortgages.
“Retailers are doing it tough, with many reporting declining sales and having to make difficult decisions around staffing.”
Retail NZ’s latest quarterly Retail Radar report, covering April-June 2025, showed that 62 per cent of retailers failed to meet their sales targets for the quarter.
Young said consumers are continuing to be careful with their spending. “Low consumer confidence is still limiting sales and retailers are keenly awaiting improvements as we come out of a long tough winter and look towards the busy Christmas shopping season.”
On another note by the RBNZ, US tariffs on New Zealand goods have increased from 10 per cent to 15 per cent, as part of wider changes to tariffs on many global countries. The RBNZ noted this tariff may hurt local exporters, particularly those who are reliant on the US.
“Higher tariffs will reduce global trade and economic activity,” the bank reported. “Inflation will be higher in the US as their imports will now cost more. However, if the US buys fewer international goods, it could lower prices for other countries including New Zealand.
“High uncertainty about tariffs is causing some businesses to delay investment and hiring plans, both in New Zealand and overseas.”