‘Looks like the last’: While the Reserve Bank has left the door open for further OCR easing, economists say it’s not as wide as many would have expected

Following the latest cut to the Official Cash Rate (OCR), an economist says the main message appears to be that it’s highly likely the easing cycle is done and the OCR is now on hold.

On Wednesday the OCR was cut to 2.25% from 2.50% with one member of the Reserve Bank’s (RBNZ) six-member Monetary Policy Committee voting to keep the OCR at 2.50% and the others voting for the 25 basis point cut.

And now the RBNZ says future moves will depend on how the outlook for medium-term inflation and the economy evolve. But it doesn’t specifically say the next move would be down.

Wednesday’s OCR cut wasn't a surprise - economists and financial markets anticipated the RBNZ would drop the OCR by 25 basis points.

BNZ’s Head of Research Stephen Toplis says; “We thought the RBNZ would cut its cash rate 25 basis points today, leave the door open to further easing next year, while setting a significant hurdle for further action.”

“The hurdle to further action does look significant, with the door for further easing barely open.”

The RBNZ’s decision “strongly supports” BNZ's view that the OCR is now on hold, Toplis says.

“We see the [Reserve] Bank’s near-term forecasts more likely to be beaten on the top side which would reinforce thinking that the [Reserve] Bank is done easing.”

ASB’s chief economist Nick Tuffley says; “the door for further easing is open, but not as wide as many would have expected”.

‘On hold for now’

Tuffley says the central bank’s messaging about the way forward was what mattered on Wednesday.

“On that front, the RBNZ was a bit more cautious than generally expected.”

“The RBNZ will cut again if needed, but only if the economy looks set to underperform its latest forecasts,” Tuffley says.

Tuffley says the RBNZ’s Gross Domestic Product, Consumer Price Index and unemployment rate forecasts look reasonable for the next batch of outcomes.

“Early signs of economic recovery are showing up in labour market indicators, some consumer spending data, and - very tentatively - the housing market.

“Exports are proving resilient so far to the global environment and US tariffs. Various inflation gauges are pointing to inflation easing, but more likely to be hanging around in the top half of the inflation target than the bottom half.”

Tuffley says the ASB economics and research team thinks 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 … If the economic recovery underwhelms, then the RBNZ could cut again. But, barring nasty surprises, the RBNZ looks on hold now.”

‘The low point for the OCR in this cycle’

Infometrics chief forecaster and director Gareth Kiernan says the forecasts in the latest Monetary Policy Statement show the OCR bottoming out at 2.2% in the June 2026 quarter.

At face value, Kiernan says this “implies just a 20% change of any further cuts in this cycle”.

Compared to October’s statement from the central bank, Kiernan says the latest announcement is more positive - pointing out, like ASB's Tuffley, that economic activity is picking up.

“Lower interest rates are encouraging household spending, the labour market is stabilised, and the exchange rate is supporting exporters’ incomes,” Kiernan says.

“The Reserve Bank’s unwillingness to signal any further interest rate cuts in 2026 is partly a reflection of more positive economic indicators starting to come through over the last few weeks.

“The committee is also likely to have been careful to ensure that today’s statement left the future policy direction open so that incoming Governor Anna Breman is not unduly constrained at her first Monetary Policy Review in the new year.”

New Governor of the Reserve Bank Anna Breman starts on December 1.

Kiernan says Infometrics is comfortable with its position that 2.25% “will be the low point for the OCR in this cycle”.

“By the time of the next review on 18 February, we expect further positive indicators will make it clear the economy is recovering and that no further cuts are necessary,” Kiernan says.

“The [Reserve] Bank’s forecasts show interest rates starting to trend upwards by the first half of 2027, as activity levels get closer to the economy’s potential output.”

“This outlook is broadly consistent with our view that the OCR will return to a neutral level of 3% by mid-2027,” Kiernan says.

‘Always going to be difficult to slam the brakes'

ANZ chief economist Sharon Zollner says; “unless the economy is hit with some kind of unexpected negative shock, the OCR is not going any lower”.

Zollner says compared to October, the RBNZ’s medium-term outlook is little changed.

“But they are now more confident about the starting point, in that they are seeing economic activity picking up from the weakness over the middle of 2025 as their forecasts had anticipated.”

For ANZ economists, the central bank’s decision, tone and OCR forecast were what they expected.

“We suspect that the RBNZ’s model was not telling them they needed to cut the OCR further … However, having accelerated the pace of easing last month, it was always going to be difficult to slam the brakes today - the path of least resistance was always going to be to continue easing.”

"We continue to forecast that barring a global shock, the next move in the OCR is up," Zollner says. 

‘More neutral than we expected’

Westpac chief economist Kelly Eckhold says the general tone of November's Monetary Policy Statement “seems more neutral than we expected”.

Eckhold points to the committee having no consideration of a 50 basis point cut which would have potentially dropped the OCR to 2%, and the one committee member who voted not to change the OCR.

Eckhold says the RBNZ’s assessment that the economy is picking up is “a little more confident” than what Westpac economists might have thought.

“Fixing the March 2026 OCR average at 2.25% sends a neutral bias for the February 2026 meeting.”

Eckhold says they expect 2.25% to mark the “nadir of the easing cycle” and “continue to expect the RBNZ to maintain a flexible data-dependent approach”.

“We agree that the current OCR, left long enough, should be sufficient to support the recovery in the economy.”

Westpac’s economists expect no further cuts in the OCR with Eckhold saying: “Our baseline forecast is that the OCR will begin a gradual move higher from late next year.”

As for the next policy decision, Eckhold says a factor that will have bearing is the arrival of Breman and the departure of acting RBNZ Governor Christian Hawkesby (before taking this role temporarily, Hawkesby was the Deputy Governor with responsibility for Financial Stability).

This would leave a vacancy on the Monetary Policy Committee, Eckhold says.

“That vacancy may be filled by the time of the February Monetary Policy Statement meeting, possibly by a temporary appointment pending the appointment of a new Deputy Governor.”

Recovery mode?

Kiwibank economists Jarrod Kerr, Mary Jo Vergara and Sabrina Delgado say while the OCR drop to 2.25% was expected, “the RBNZ’s tone and new track, not so much”.

“Today’s decision, with a vote against and OCR track with a 2.20% terminal rate, signalled a bank close to the bottom,” the Kiwibank economists say.

“Just as a diver slows down as they approach the sea floor, in murky water, the RBNZ Monetary Policy Committee members have their hands out, feeling around. If 2.25% is the bottom, and we think it is, that’s good news.”

“We expect (hope) the RBNZ has done enough to see a material lift in activity next year."

“Finally, we may be in full-blown recovery mode.”

“Will more stimulus be needed in 2026? The RBNZ maintains some optionality,” they say.

“There’s a 50/50 chance of another move in February,” the economists say.

“The RBNZ sees a reduced risk. We maintain this risk is close to 50/50, and we need to see how the economy develops over summer.

“So enjoy the break, and let’s get back to it in February.”

A stalling economy?

Labour’s finance and economy spokesperson Barbara Edmonds says while cuts to interest rates were welcome news for mortgage holders, rate cuts signal a stalling economy.

“That’s not bragging material for any government,” Edmonds says.

“It is government choices that determine whether people can find a job, afford a home, or get ahead."

“We shouldn’t pretend that central banks run the economy – governments do. If wages are flat, prices are rising, or businesses are failing, that’s on Christopher Luxon.”

Edmonds says Luxon was relying on the Reserve Bank to do the job that he can’t.

Speaking to the media after the announcement, Finance Minister Nicola Willis welcomed the OCR cut, saying the Reserve Bank is “confidently forecasting that next year will be a year of lower inflation and higher growth”.

Willis says she knows many New Zealanders would have liked this recovery to come sooner.

“What I do see in today’s data and independent forecasts is a very solid basis that growth is ahead of us.”

Willis says the RBNZ is forecasting “inflation coming down further, that’s good news. They’re forecasting that will happen with rising growth and interest rates being maintained at a very low rate”.

“So those three things together, I think, are positive news for New Zealanders because what is the recipe that leads to people feeling good? It’s low inflation, it’s low interest rates, it’s high growth.”

In response to Labour, Willis says the party needs to go back and study economics “because monetary policy and fiscal policy should work together to deliver a strong economy”.

Changes at the Reserve Bank

Wednesday marks the last OCR announcement for 2025 and the last for Hawkesby, who told Newstalk ZB’s Heather du Plessis-Allan that he would be taking a long break over the summer.

"I think [Breman] will do a wonderful job. We've met six times. Now, a big focus for me has been supporting her," Hawkesby says.

"We've had a lot of discussions - everything and anything a new Governor might want to ask." 

Finance Minister Nicola Willis says Hawkesby has done a commendable job during his time in the Governor’s seat.

“And in particular [he] has paid close attention to providing a strong transition for the incoming Governor,” Willis says.

So what does Willis think Breman can expect?

“I think what Dr Breman can look forward to is coming into a bank that has delivered on its mandate," Willis says, "that is ensuring New Zealand has low, stable inflation, that is managing its functions better than it has in the past and that is really committed to being better in the future".