The Reserve Bank of New Zealand (RBNZ) has lowered the Official Cash Rate (OCR) from 2.50% to 2.25%.
“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% by mid-2026. The significant reduction in the OCR since August 2024 is expected to support a recovery in economic activity,” RBNZ said in its media release.
Household inflation expectations have decreased but are still elevated compared to recent trends. Meanwhile, the inflation expectations of professional forecasters and business leaders have stayed steady, hovering just above the 2% target midpoint.
Committee members discussed how US tariff policy and wider geoeconomic uncertainty have unsettled New Zealand’s early-stage 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 bank said.
The Committee reviewed the recent relaxation in domestic financial conditions. Wholesale interest rates have dropped, and the New Zealand dollar Trade Weighted Index has weakened 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.”
The Monetary Policy Committee observed early indications of stabilisation in labour demand, as job vacancies and total hours worked rose in the September quarter. This trend is anticipated to expand into a broader enhancement of labour market conditions in the coming quarters, supporting household confidence and spending.
Prior to the announcement, several economists generally expected the Reserve Bank to cut the Official Cash Rate (OCR) by 25 basis points.
Meanwhile, the committee said future OCR adjustments will depend on the developments in the medium-term inflation outlook and overall economic conditions.
This month’s statement will be the final update of the year and also the last under acting Governor Christian Hawkesby, before Dr Anna Breman takes over as Governor of the Reserve Bank in December.