- Decision
- Lower
- Rate change
- 50 bps
- official cash rate
- 2.5%
The Reserve Bank of New Zealand’s Monetary Policy Committee cut the Official Cash Rate (OCR) by 50 bp to 2.5 percent on 8 October 2025, judging that significant spare capacity and weak mid-2025 GDP outweighed near-term inflation, which at about 3 percent sits at the top of the 1–3 percent target band but is projected to ease to around the 2 percent midpoint in the first half of 2026. After holding in July, the Committee has now lowered the OCR by a cumulative 125 bp since February 2025. The statement offered no new operational changes but noted that earlier and current easing is feeding through to cheaper business and mortgage borrowing, expected to lift consumption and narrow the sizeable output gap. Domestic activity remains subdued—house prices are flat, residential and business investment weak, and Q2 GDP contracted sharply—yet improving household spending and high commodity export prices provide some support, aided by a softer New Zealand dollar. Trading-partner growth has held up on AI-linked investment but is forecast to slow in 2026 amid ongoing global trade tensions and geopolitical risks that the Committee views as broadly disinflationary for New Zealand. Policymakers signalled they remain prepared to cut further if needed to ensure inflation stabilises sustainably near 2 percent over the medium term.
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.