Official cash rate cut to 2.5%

The Reserve Bank of New Zealand has cut the official cash rate (OCR) by 50 basis points to 2.5 per cent, its lowest level since July 2022.

The decision was announced on October 8 after a meeting of the central bank’s monetary policy committee, which indicated it will slash the OCR further in November if necessary.

Annual consumers’ price index inflation is currently around the top of the committee’s one to three per cent target band, but is expected to return to around the two per cent target mid-point over the first half of 2026, the Reserve Bank says. 

“Economic activity through the middle of 2025 was weak,” it adds. “In part, this reflects domestic constraints on the supply of goods and services in some industries, and the impact of global economic policy uncertainty. 

“Household consumption is recovering, partly because of lower interest rates, and elevated commodity prices continue to support the primary sector. 

“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 Reserve Bank says 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.” 

It notes the committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the two per cent target mid-point in the medium term.