- Decision
- Lower
- Rate change
- 50 bps
- official cash rate
- 3.75%
The Reserve Bank of New Zealand’s Monetary Policy Committee cut the Official Cash Rate (OCR) by 50 bp to 3.75 percent on 19 February, citing headline consumer price inflation sitting “close to the midpoint” of its 1–3 percent target range, falling core inflation and on-target business inflation expectations, alongside significant spare capacity in a subdued economy. With restrictive rates having curbed demand, domestic price and wage pressures are easing, non-tradables inflation is retreating, and wage growth and job vacancies have softened, though employment is projected to pick up in the second half of 2025 as growth recovers. Headline CPI is expected to be volatile near term due to a weaker NZD and higher petrol prices but is forecast to stay within the band, while GDP is seen rebounding modestly on lower borrowing costs, firmer export prices for dairy and beef and a more competitive currency. The committee noted stable financial conditions, declining mortgage and term-deposit rates as the lower OCR filters through, and a well-capitalised banking system despite pockets of household and corporate stress. Externally, trading-partner growth remains below potential, global energy costs have nudged headline inflation higher abroad, and rising trade barriers and geopolitical tensions pose downside risks to activity and uncertain effects on prices. The committee judged it has “scope to lower the OCR further through 2025” should economic conditions evolve as projected.
Rate evolution
Over the period, the Reserve Bank of New Zealand lowered the Official Cash Rate (OCR) by a net 50 basis points from 3.25 percent to 2.75 percent, cutting through late 2025 after a July pause, holding in early 2026, then raising the rate in July and September 2026. Early easing reflected declining core inflation, spare capacity, weak demand, and the view that tariffs and global policy uncertainty would restrain growth and medium-term inflation, even as headline inflation neared the top of the 1 to 3 percent band on food and administered prices. As the recovery stalled, the Committee accelerated easing in October before a smaller November cut, while judging risks as broadly balanced between persistent near-term price pressures and weak activity.
The Committee then kept the OCR at 2.25 percent as Middle East supply disruptions lifted fuel and petrochemical costs, raised near-term inflation and weakened activity, before increasing it by 25 basis points to 2.50 percent on July 8, 2026, as activity was expected to strengthen and persistent non-tradables inflation indicated that further stimulus removal would likely be required. On September 2, it raised the OCR by another 25 basis points to 2.75 percent after inflation reached 4.1 percent in the June quarter, largely because of higher fuel and related prices, while judging that core inflation, expected wage growth and inflation expectations remained consistent with inflation returning to target. The Committee said gradually removing monetary stimulus would reduce the risk of larger increases later, and judged that the OCR may need to rise further if the recovery strengthens and price-setting keeps inflation elevated.