The Reserve Bank (RBNZ) slashes the Official Cash Rate (OCR) to 2.5% from 3%.
“Annual consumers price index inflation is currently around the top of the Monetary Policy Committee’s 1 to 3% target band. However, with spare capacity in the economy, inflation is expected to return to around the 2% target mid-point over the first half of 2026,” RBNZ said in its media release.
Economic activity remained subdued through mid-2025. “In part, this reflects domestic constraints on the supply of goods and services in some industries and the impact of global economic policy uncertainty,” RBNZ said.
“Household consumption is recovering, partly because of lower interest rates, and elevated commodity prices continue to support the primary sector. House prices are flat, and residential and business investment remain weak.”
Economic growth among New Zealand’s trading partners remains resilient, partly due to strong investment in AI-related activities.
However, a slowdown is anticipated in 2026.
New Zealand’s inflation outlook faces both upside and downside risks. If households and businesses act cautiously, the economic recovery may slow, easing medium-term inflation pressures.
Conversely, higher inflation in the near term might persist longer than expected.
Before the announcement, several economists and other commentators supported a 50 basis point drop, while others expected a 25 basis point cut.