The Reserve Bank has cut the official cash rate by 25 basis points to 5.25%. It is the first cut since March 2020.
New Zealand’s annual consumer price inflation is returning to within the Monetary Policy Committee’s 1 to 3% target band, the Reserve Bank said.
The Reserve Bank’s new forecast rate track suggests the OCR will fall from here to at least 5% by the end of the year and to at least 4.5% by June next year.
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While views among bank economists were mixed, all agreed the direction of travel for rates is down, and sooner rather than later.
Emphatic market signals of an imminent rate cut were tempered by June quarter jobs data last week, which showed unemployment rose to 4.6% in the June quarter – slightly less than the market consensus forecast of 4.7%.
But then came Thursday’s third-quarter survey of inflation expectations from the RBNZ showed the two-year-ahead measure falling to 2.03% – its lowest since the first quarter of 2021 – which added weight to the rate-cut camp.
By Friday, the highly speculative overnight indexed swap (OIS) market was pricing in an 80% chance of a cut.
ANZ chief economist Sharon Zollner said recent data pointed to a slowing economy and solid disinflation, which justified cutting the OCR far earlier than August 2025, as was signalled by the central bank back in May.
ASB senior economist Mark Smith was one of only a few who expected a cut today.
“Our view is that inflation is effectively under 3% now,” Smith said. “Looking ahead, the signs are clearly worrying for the economy.”
“Not only do we expect inflation to fall below 3% in the second half of the year, we expect it to stay there, reflecting how we are seeing things for the economy in general and the labour market in particular,” Smith said.
BNZ economists said an easing was already overdue.
“The New Zealand economy is buckling under the pressure of extremely tight monetary conditions, slumping net migration, Government cutbacks, rising unemployment, reduced investment activity and weak confidence,” BNZ said.
Kiwibank said the restrictive monetary policy had “inflicted much pain and tamed the inflation beast”.
“Households and businesses are struggling.
“Almost all data have come out on the weaker side of expectations and well below Reserve Bank estimates.
“Unemployment is rising, swiftly, and confidence in the economy remains at recessionary levels. It’s been two years of recession.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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