- Decision
- Lower
- Rate change
- 25 bps
- official cash rate
- 3.5%
The Reserve Bank of New Zealand’s Monetary Policy Committee cut the Official Cash Rate (OCR) by 25 bp to 3.50 percent, judging that with annual consumer price inflation close to the 1–3 percent target midpoint, ample spare capacity at home and mounting downside risks from newly imposed global trade barriers, easier policy is warranted to sustain activity and keep inflation on target. Following February’s 50 bp reduction to 3.75 percent, the Committee noted that earlier easing has yet to fully feed through to household spending and residential investment, both of which remain subdued despite support from stronger export prices and a weaker NZD. Core inflation and business inflation expectations are aligned with the 2 percent objective, while recent falls in import prices and lower oil costs are dampening headline pressures. Externally, tariff escalations among major economies and heightened geoeconomic uncertainty are expected to slow global growth, though the softer currency is helping offset weaker external demand for New Zealand exports. The Committee reiterated that it retains scope for further cuts and will calibrate future moves to the evolving medium-term inflation outlook.
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.