The Reserve Bank of New Zealand (RBNZ) lowered the Official Cash Rate (OCR) by 25 basis points, bringing it to 3.25%, down from 3.50% in April.
“Annual consumer price index inflation increased to 2.5% in the first quarter of 2025. Inflation expectations across firms and households have also risen. However, core inflation is declining, and there is spare productive capacity in the economy. These conditions are consistent with inflation returning to the mid-point of the 1 to 3% target band over the medium term,” RBNZ stated in its media release.
RBNZ said global economic growth is expected to decline due to recent international economic events. Tariffs and increased policy uncertainty abroad should dampen New Zealand’s economic recovery and ease medium-term inflation pressures. However, these predictions remain highly uncertain.
Meanwhile, the New Zealand economy is rebounding following a phase of decline, with strong commodity prices and reduced interest rates helping to boost overall economic activity.
Based on the media release, inflation remains within the target range, and the Monetary Policy Committee is well positioned to address both domestic and international developments to ensure price stability in the medium term.
The Committee observed that most wholesale interest rates have decreased since February, leading to lower mortgage and term deposit rates. The average interest rate on outstanding mortgages should continue to fall in the coming quarters as more mortgage holders renew at lower fixed-term rates.
The Committee also reviewed the medium-term forecast for import prices, noting that a less productive global economy amid ongoing deglobalisation poses an upside risk to the current import price estimates.
Expectations for the OCR have decreased since February, when the RBNZ suggested a possible hold at 3.25%, with a potential decrease to 3% by the end of the year. Now, many forecasts predict the OCR could drop to between 2.75% and 2.5% by year-end.
The OCR announcement marks the first public appearance of Christian Hawkesby, the new acting Reserve Bank Governor. Hawkesby will serve as governor for six months while a permanent replacement for Orr is found, with Hawkesby himself being a potential candidate.