New Zealand’s central bank cut its benchmark Official Cash Rate (OCR) by 25 basis points to 2.25%, the lowest level since mid-2022. However, policymakers signaled that the current easing cycle is essentially over as the economy shows early signs of recovery.

The Reserve Bank of New Zealand (RBNZ) said it had debated whether to hold rates or issue another cut, and future moves will depend on the inflation and economic outlook. This was the bank’s final monetary policy meeting under Governor Christian Hawkesby before Anna Breman takes over in December.

The RBNZ now projects the OCR to be 2.20% in Q1 2026 and 2.65% by Q4 2027—a path that reflects a more cautious, hawkish stance despite being slightly lower than earlier forecasts.

Markets reacted swiftly.

• The New Zealand dollar jumped 1% to $0.5682, the strongest level in over a week.
• Two-year swaps rose 8 bps to 2.6653%, as expectations for further cuts dropped sharply—from over 50% to just 22%.

The move aligned with a Reuters poll where nearly all economists expected a 25 bps cut. The RBNZ has delivered 325 bps of easing since August 2024, including a surprise 50 bps cut in October, to support an economy that has contracted in three of the last five quarters.

While inflation rose to 3% in Q3, the RBNZ expects it to fall toward the midpoint of its 1–3% target, reaching around 2% by mid-2026. The bank emphasized balanced risks and noted that lower interest rates are helping lift household spending.

The RBNZ’s caution mirrors the approach of the Reserve Bank of Australia and the U.S. Federal Reserve, both of which have slowed easing due to persistent inflation pressures.

The meeting minutes show five of six committee members supported the cut, though concerns remain about upside risks to inflation even as “significant excess capacity” in the economy justified easing.

New Zealand’s economy remains fragile. Despite aggressive stimulus and rate cuts, growth has been hampered by

• weak consumer confidence,
• a sluggish housing market,
• rising unemployment,
• tight government spending, and
• a global economic slowdown.

The central bank expects GDP to grow 0.4% in Q3 and 0.7% in Q4, offering some hope that the economy is finally regaining momentum after slipping into recession last year and contracting again sharply this year.