RBNZ makes larger-than-expected 50bps rate cut
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The news: The Reserve Bank of New Zealand (RBNZ) has reduced the country's official cash rate (OCR) by 50 basis points to 2.5%.
The numbers: Markets had priced in a 70% chance of a 25-basis-point cut and a 30% chance of a 50-basis-point cut, according to ANZ research.
The central bank's monetary policy committee said it "remains open to further reductions" in the OCR, as it aims for inflation to settle near 2% — the mid-point of its medium-term target — over the first half of 2026. Annual consumers price index inflation is currently around the top of the committee's 1-3% target band.
The context: The RBNZ described economic activity through the middle of 2025 as "weak", partly reflecting domestic constraints on the supply of goods and services in some industries, as well as the impact of global economic policy uncertainty.
The central bank noted that household consumption is recovering, aided by lower interest rates and elevated commodity prices supporting the primary sectors.
House prices are flat, it said, with residential and business investment remaining weak.
What they said: "Economic growth in New Zealand’s trading partners is proving resilient, partly because of strong investment in AI-related activity, but is expected to slow in 2026," the RBNZ said in a media release.
"There are upside and downside risks to the inflation outlook in New Zealand. Cautious behaviour by households and businesses could slow the economic recovery, reducing medium-term inflation pressure. Alternatively, higher near-term inflation could prove to be more persistent."
The sources: RBNZ media release, ANZ research
