The Reserve Bank (RBNZ) has cut the Official Cash Rate (OCR) to 2.25%, from 2.50% and says future moves will now depend on how the outlook for medium term inflation and the economy evolve. Notably it doesn't specifically say the next move would be down.
The statement gave reasonable hints the RBNZ currently sees this cut as possibly the last - at the moment anyway.
The RBNZ's Monetary Policy Committee discussed only whether to either leave the OCR at 2.50% or to reduce it to 2.25% - there was no suggestion of a 50 point cut. In the end the decision was passed on a 5-1 vote.
A 25-point cut had been fully priced in by financial markets ahead of Wednesday's OCR review, so, much interest from the announcement was in the updated forecasts in the new Monetary Policy Statement (MPS), also issued on Wednesday.
In the last set of forecasts issued in August, the RBNZ had forecast a low point for the OCR of 2.55% in March of 2026. It now sees a low point of 2.20% as of June 2026.
ASB chief economist Nick Tuffley said the RBNZ had left the door for further easing open, "but not as wide as many would have expected".
"...The RBNZ was a bit more cautious than generally expected. The RBNZ will cut again if needed, but mainly if the economy looks set to underperform its latest forecasts. And the RBNZ GDP, CPI and unemployment rate forecasts look reasonable for the next batch of outcomes," he said.
"Our base case is the RBNZ will keep the OCR on hold now at 2.25%, and watch closely for various lagged stimuli to work through with more effect. Remaining on hold is contingent on the economy picking up as expected. So, how the summer data flow pans out will be key... If the economic recovery underwhelms, then the RBNZ could cut again. But, barring nasty surprises, the RBNZ looks on hold now."
Westpac head of NZ strategy Imre Speizer said the RBNZ statement was "less dovish" than the markets expected, "accordingly, swap [interest] rates and the NZD [NZ dollar] rose in response".
He said in the markets, net reactions 20 minutes after the announcement were that the two-year swap rate was up 6 basis points to 2.65%, the 10yr swap up 3bp to 3.79%, the 2035 NZ Government Bond up 5bp to 4.19%, while the NZ dollar rose 44 pips against the American currency to US0.5671.
The kick-starter October OCR cut
Subsequent to the August MPS forecasts we saw what could be styled a 'cheer up' 50 point cut implemented in the October review as the RBNZ tried to inject some confidence into the public and re-start a faltering economic recovery.
This followed release in September of GDP figures for June showing the economy shrinking, rather alarmingly, by 0.9%. However, there's reasons to believe that figure overstated matters, although clearly the hoped-for recovery did falter.
The RBNZ hiked the OCR all the way from just 0.25% to 5.5% between October 2021 and May 2023 to combat inflation that surged as high as 7.3% in mid-2022.
The OCR hikes ultimately caused a recession. As inflation came back into the targeted 1% to 3% range, the RBNZ began reducing the OCR from August last year.
The OCR began this year on 4.25% and will end it on 2.25%.
This was the last OCR review till February 18 and the last one headed by temporary Governor Christian Hawkesby who is now leaving the bank ahead of the December 1 start of new Governor Anna Breman. Breman will oversee the February review.
This is the statement from the Reserve Bank:
Annual consumers price inflation increased to 3 percent in the September quarter. However, with spare capacity in the economy, inflation is expected to fall to around 2 percent by mid-2026.
Economic activity was weak over mid-2025 but is picking up. Lower interest rates are encouraging household spending, and the labour market is stabilising. The exchange rate has fallen, supporting exporters’ incomes.
Global economic growth has benefited from strong AI-related investment but is expected to slow in 2026 as trade barriers weigh on activity.
Risks to the inflation outlook are balanced. Greater caution on the part of households and businesses could slow the pace of New Zealand’s economic recovery. Alternatively, the recovery could be faster and stronger than expected if domestic demand proves more responsive to lower interest rates.
The Committee voted to reduce the OCR by 25 basis points to 2.25 percent. Future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolve.
Summary of Monetary Policy Committee meeting:
Annual consumers price inflation increased to 3 percent in the September quarter, the top of the Monetary Policy Committee’s 1 to 3 percent target band. Significant spare capacity remains in the economy and inflation is expected to fall to around 2 percent by mid-2026. The significant reduction in the OCR since August 2024 is expected to support a recovery in economic activity.
Annual inflation is at the top of the target band but expected to moderate
The Committee noted that both core and non-tradables inflation have continued to decline. Annual tradables inflation increased in September due to petrol prices and high food inflation but is expected to decline over the medium term. Annual headline CPI inflation increased due to higher tradables inflation along with high inflation in household energy costs and local council rates. As these dissipate, this will support headline CPI inflation returning to near the 2 percent mid-point of the target range in mid-2026.
Household inflation expectations have fallen but remain high relative to recent history. The inflation expectations of professional forecasters and business leaders have remained stable at slightly above the 2 percent target midpoint.
The economic recovery stalled in the June quarter
Committee members considered how US tariff policy announcements and broader geoeconomic uncertainty disrupted New Zealand’s nascent economic recovery. Greater uncertainty likely led to increased precautionary behaviour by households and businesses, dampening consumption and investment.
However, while measured GDP declined by 0.9 percent in the June quarter, this likely overstates the weakness in the economy through this period. The Committee noted that an unusually large seasonal balancing item contributed to the weakness in the headline figure. This is expected to be reversed over the next few data releases.
Some industry-specific factors may also have constrained supply. For example, high milk prices and unfavourable weather conditions likely contributed to higher livestock retention and lower meat production in the first half of 2025. Limited access to domestic energy sources and higher energy prices are likely to have weighed on manufacturing more generally.
Significant spare capacity remains
The Committee discussed the balance between supply capacity and demand. In addition to short-run factors, the economy’s medium-term supply capacity has been reduced by weak growth in productivity and the working age population. Estimates suggest that annual potential output growth is currently around 1.5 percent.
Weak economic activity has resulted in significant spare capacity opening in the economy since mid-2024. Unemployment and measures of labour underutilisation have increased, and firms are reporting that it is now relatively easy to find workers. While job losses are not high compared to past economic downturns, job vacancies and job transitions have been low, so it has been relatively difficult for unemployed people to transition back to work.
Economic conditions have been variable across different sectors and regions of the economy. High prices for New Zealand’s commodity exports have lifted incomes in the rural economy. This has supported economic activity in rural areas, although debt reduction by farmers has meant measures of on-farm investment have not yet increased to the extent seen in previous commodity price cycles. The level of economic activity remains low in industries reliant on domestic demand.
Financial conditions have eased and the financial system remains stable
The Committee discussed the easing in domestic financial conditions that has occurred. Wholesale interest rates have declined and the New Zealand dollar Trade Weighted Index has depreciated since August. Cuts to the OCR have reduced borrowing costs and mortgage rates. The average yield on mortgages has fallen to 5.4 percent. With close to 40 percent of fixed rate mortgages due to reprice over the December and March quarters, the average mortgage yield is expected to fall further to 4.7 percent by September 2026 based on current market pricing.
Measures of domestic financial stress have eased as lower interest rates reduce debt servicing pressures. Early arrears, which provide an early indicator of impaired lending, have declined. Non-performing housing loans have also declined, and banks expect further reductions in housing and commercial property impairments over 2026. Non-performing loans in the business sector remain elevated, although at lower levels than in previous downturns.
Economic activity is recovering
Committee members discussed an improvement in near-term indicators of economic activity from their lows in the June quarter, suggesting a return to modest GDP growth in the September quarter. Feedback from recent business visits also suggest that, while activity remains weak, demand has stabilised.
The Committee noted that there are also some early signs of stabilisation in labour demand, with job vacancies and total hours worked increasing in the September quarter. This is expected to broaden into a wider improvement in labour market conditions over coming quarters, which will support household confidence and spending.
Relative weakness in the labour market over the past two years has contributed to higher outward migration from New Zealand, particularly to Australia. Regional disparities in housing and labour markets have also likely encouraged higher internal migration. Outward migration is expected to reduce as the New Zealand economy and labour market recovers, with net migration expected to increase towards long-run trends.
Future growth in house prices is expected to be moderate
Members discussed that house prices, in aggregate, have remained stable to date despite lower mortgage interest rates and a modest pick-up in housing market activity. Stable house prices could reflect weak population growth and elevated long-term interest rates. Supply side reforms in the housing market, such as less restrictive zoning laws, may also be moderating the extent to which increases in housing demand contribute to house price inflation.
The Committee assessed that upcoming reductions in mortgage loan-to-value ratio requirements are unlikely to have a material effect on house prices, especially with debt-to-income restrictions now in place. House price growth is expected to be moderate over the projection period, broadly in line with growth in nominal incomes.
Global growth has been resilient but is expected to slow
Members noted that tariffs have had less impact on the global economy than initially expected, reflecting the imposition of lower tariff rates than originally envisaged, inventory management, and adjustments in global supply chains. Global growth has also been supported by higher investment in artificial intelligence technology, particularly in the US, which has boosted exports from Asia. Higher demand for exports has supported economic growth in China, despite weakness in domestic demand.
Global growth is expected to slow modestly in 2026. This reflects an anticipated weakening in global export demand as the pace of AI investment slows. The Committee still expects trade barriers to weigh on global economic activity and to have a modest disinflationary effect on New Zealand.
Risks to the outlook for inflation are balanced
The Committee discussed the risk that price setting behaviour by businesses may become more sensitive to upside inflation surprises, given recent high inflation and inflation expectations remaining above the target mid-point. Spare capacity in the economy has reduced business profit margins and some restoration in margins is expected as demand improves. This restoration in margins could occur more rapidly than anticipated, which would pose an upside inflation risk.
Members noted there are risks around the speed of the recovery. Some members highlighted the risk that continued caution on the part of households and businesses could further slow the recovery in domestic demand, which could see inflation fall below the target midpoint. Conversely, other members highlighted the possibility of a faster recovery if house prices and household spending increase more quickly than assumed given lower mortgage rates, leading to more persistence in medium-term inflation pressures. Members also discussed the possibility of a stronger increase in on-farm investment stemming from high export commodity prices and the expected return of capital to dairy farmers in 2026 from the sale of Fonterra’s consumer brands business.
The Committee discussed risks to the global outlook. Investment in AI technologies has been a significant driver of global growth and equity returns over the past year. Uncertainty remains around the returns from AI adoption. There is a risk of a more significant correction in equity markets and reduced investment if heightened investor expectations are not met.
Inflation remains high in several advanced economies. Global policy uncertainty also remains high. The Committee noted downside risks to growth in China, as policy makers attempt to maintain growth in the face of weak domestic demand and an increasingly fragmented global trading environment. The Committee also noted uncertainty about US economic policy, and the associated risk of higher US inflation.
The Committee discussed the risk that unsustainable fiscal dynamics and increased politicisation of central banks globally could create the conditions for higher and more persistent inflation.
The Committee voted to lower the OCR to 2.25 percent
The Committee discussed the options of holding the OCR at 2.5 percent and lowering the OCR to 2.25 percent, noting low tolerance for prolonging the return of inflation to the target mid-point.
The case for holding the OCR emphasised the considerable reduction in the OCR to date, which is still working its way through the economy. Economic indicators are recovering, and economic activity is expected to strengthen through 2026. Particular emphasis was placed on the upside risks to inflation and output. Leaving the OCR unchanged at this meeting would provide the optionality to lower the OCR in the future if required.
The case for a further reduction in the OCR emphasised significant excess capacity in the economy. This provides confidence that medium-term inflation will return to, and remain around, the target midpoint. The economic recovery is at an early stage, and the inflation outlook provides scope to place more emphasis on avoiding unnecessary volatility in output and employment. With this context, retention of the easing in overall monetary conditions delivered to date would support an enduring recovery in economic activity.
The Committee discussed how to balance the achievement of their inflation mandate with the need to avoid unnecessary instability in output, employment, interest rates and the exchange rate.
On Wednesday 26 November the Committee voted by 5 to 1 to reduce the OCR by 25 basis points to 2.25 percent. The Committee noted that a reduction in the OCR would help to underpin consumer and business confidence and lean against the risk that the economy recovers more slowly than needed to meet the inflation objective.
Future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolves.
32 Comments
Nothing here for kiwis to get excited about over summer holidays... will the wallets stay shut?
No surprises then! Just as well. Most surprises of late have been unwelcome.
Anything above 2% is holding the economy back IMO.
Is that what makes your rental yield sustainable by chance?
Yes, it certainly would help. At current rates, it only just keeps ahead of costs. Rental yield is fairly average if i'm being honest with you but that's not the main reason I've invested in property. For me, it's a long-term inflation-hedge. Whether it works out that way or not remains to be seen. I'll get back to you in a decade.
Are we so in debt the only option is debasement of debt and support of inflation fueling speculation....?
yes, next stage is helicopter money
why is trump buying corp bonds, because the face value will rise as interest rates drop
We're so far along in our development cycle that this is one of few mechanisms to eek along.
Yes, indeed ! (not saying it's right or good, but it is where we are)
Conversely, other members highlighted the possibility of a faster recovery if house prices and household spending increase more quickly than assumed given lower mortgage rates,
Knew they would slip this in somewhere without making it look like the be-all-and-end-all. But is all seems like hopium rather than confirmation. They're essentially saying that they don't know if cheaper mortgage debt will flow through to consumption. The boffins are not oozing in confidence that they're in control.
credit collapse and deflation caused the great depression
That was the one where all those retail investors got torched trying to ride a wave of unrealistic stock values aye?
credit collapse and deflation caused the great depression
I think the threat of a Great Depression is being delayed. An event maybe worse than the Great Depression is on the cards, thanks to the extreme money printing to keep the post‑WWII fiat system alive. This ultimately leads to inflation, social unrest, and institutional crisis.
But at the moment, this is about front running liquidity cycles, holding core positions in rat poison and other scarce assets, and expecting policymakers to choose ever‑larger interventions over any repeat of 1930s‑style deflationary austerity.
Wouldn't you first want to generate a substantial amount of surplus wealth?
You seem to be trying to skip that stage, straight into a desire to radically improve it via speculation.
Wouldn't you first want to generate a substantial amount of surplus wealth?
Good question P.
1. Some people have been able to generate "surplus wealth" by substantially beating money supply expansion and the "ability to earn." Ratty is the best example here. A good benchmark would be those people who stacked heavily below fiat prices of USD5K.
2. Those who have surplus wealth are encouraged to preserve that wealth. That is why being in assets that have alpha at the start of liquidity cycles are acting in their own interests.
We don't want to hear anymore about the OCR until at least June 2026
You understand well young Jedi
I'm not sure he does, there are plenty of RBNZ meetings by June 2026 and they will indeed discuss the OCR at lengh. Perhaps Henry should not comment on this article about the OCR, if he doesn't want to hear about it (sarc).
Sarc you simply don’t understand the sarc
the RBNZ is sick of being exposed to save the economy with ocr cuts , its mandate is inflation
its up to NAct fiscal policy to save NZ even the RBNZ is sarc about it
We have heard enough about the OCR . Anyone would thing the whole economy is waiting with bated breath for leadership from the Reserve Bank. Mean while the Rest of New Zealand just gets on with real like problems
So we have probably rising inflation that is at the top of the range, but an OCR that is going lower and lower? Smells to me like they are trying to stimulate an economy that the government has forced to go down a few steps, stabilising at a lower GDP and growth rate. There aren't any green shoots yet, so the RBNZ is trying to make some.
But most people I know in the workforce are either keeping their wallets shut or are off overseas with their skills and labour. And most people I know are in IT... so there is a real brain drain going on combined with an ongoing loss of confidence resulting in low levels of spending. For instance, of the 7 or 8 close associates in IT that I know of, 5 are staying home for Christmas and a few are trying to get some overtime for working Chirstmas if its on offer (including myself) to try to earn enough to save some money for unexpected inflationary surprises next year (big insurance rate increases, big rates increases, for instance). I don't think any of us are looking at doing something like buying a new car or furniture, but most of us used to talk about doing that regularly in our catchups.
Don't worry though, the next round of government cuts announced the other day will fix it and definitely not reduce spending in the economy even more.
Out of about 8 departs 3 cuts in each this week, no announcements just redundancies more coming next year 100%
no green shoots in this industry even with 1.4 nil revenues
The continuous drop in interest rate is really terrible for savers. Inflation is eating away at their savings at a higher rate then interest is earned. A sure way to go backwards. Some will still keep their money in Term Deposits, but others will move the money in search of a better, or rather less bad return.
Where will this money flow into is THE question ?
That has always been the case. Especially after tax. I doubt it’s possible to come out with a real gain from a TD.
Corporate bond funds
And the dollar made, surprisingly, a sudden gain against all currencies.
Probably because they basically confirmed that’s the end of the rate cuts.
may have been some longs closing out AUDNZD as well. plenty from 1.10 had a good ride
National will spin this as good. ‘Look how much the OCR has dropped under National!’
The general public must be utterly retarded. Or too busy.
They do this incessantly on facebook via their page and Christopher Luxtons page. The best part is that many of the comments simply point out they're claiming the RBNZ's decisions and outcomes, which gives at least some faith that voters are learning more about this and seeing through the party treating them as fools.
I would have liked to see them go to 2% before pausing. Oh well, it will soon go lower if the economy continues to stumble.
Yes, it has further to fall IMO - possibly to 1.75% if things keep stagnating.
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