Fresh cut for official cash rate

The Reserve Bank of New Zealand has reduced the official cash rate (OCR) by 50 basis points to 4.25 per cent and predicts it will likely make a further cut early in 2025.

The third consecutive cut came after a meeting of the Reserve Bank’s monetary policy committee, which notes annual consumer price inflation has declined and is now close to the midpoint of its one to three per cent target band. 

“Inflation expectations are also close to target and core inflation is converging to the midpoint,” the Reserve Bank says. 

“If economic conditions continue to evolve as projected, the committee expects to be able to lower the OCR further early next year.” 

The reduction on November 27 has taken the OCR to its lowest level since November 2022. It follows a 50-point cut to 4.75 per cent in October and a 25-point trim in August to 5.25 per cent.

The Reserve Bank explains economic activity in New Zealand remains subdued and output continues to be below its potential. The excess productive capacity in the economy, means inflation pressures have eased. 

It observes domestic price and wage-setting behaviours are becoming consistent with inflation remaining near the target midpoint. The price of imports has also fallen, contributing to lower headline inflation. 

“Economic growth is expected to recover during 2025, as lower interest rates encourage investment and other spending,” it says. 

“Employment growth is expected to remain weak until mid-2025 and, for some, financial stress will take time to ease. 

“Global economic growth is expected to remain subdued in the near term. Geopolitical conditions and policy uncertainty could contribute to increased economic and inflation volatility over the medium term.”