The Reserve Bank of New Zealand (RBNZ) resumed cutting the Official Cash Rate (OCR) at its August meeting today, trimming the OCR by 25-basis points to bring it down to 3.00 percent, after pausing in July.

 The cut, which is good news for borrowers due to reset their mortgages before the end of 2025, was widely expected by economists and financial markets following economic challenges in the June quarter.

In the Monetary Policy Statement issued after the meeting the central bank said inflation was currently around the top of its 1-3% target band. However, with spare capacity in the economy and declining domestic inflation pressure, headline inflation was expected to return to around the 2 percent target midpoint by mid-2026. 

Economic Growth was expected to resume in the September quarter and if medium-term inflation pressures continued to ease as expected, there was scope to lower the OCR further, it said.

 In more good news for borrowers and home buyers the RBNZ said the average interest rate on New Zealand’s stock of mortgages was expected to continue to decline over the coming year, as about half of existing mortgages were expected to re-fix onto lower rates over the next six months. This would reduce debt servicing costs for households as past reductions in the OCR continue to transmit through the financial system, it said. 

In line with their expectations, major New Zealand retail banks trimmed their short-term fixed mortgage rates in the days ahead of the August rates decision. 

The RBNZ said the Committee discussed three policy options: keeping the OCR on hold at 3.25%; cutting the OCR by 25 basis points to 3%; or cutting by 50 basis points to 2.75%. In the meeting, it was decided to reduce to 3% in a majority 4-2 vote the RBNZ said.

The RBNZ aggressively cut the OCR by 225 basis points from 5.5 percent to the previous low of 3.25 percent from August last year but paused cutting at its June meeting after split Monetary Policy Committee member views.

Raine & Horne New Zealand General Manager James Shepherd said the decision to resume cutting would hopefully be seen as a growth signal by the market and encourage home buyers and property investors sitting on the sidelines to aggressively enter the market before the spring sales surge when there would be more competition. “The message from the RBNZ is clear, if conditions continue, scope exists for further cuts and borrowers will benefit from lower mortgage costs now and over the coming year. Astute buyers and sellers need to ask themselves if this is the market catalyst they have been waiting for and act accordingly before others do,” James said.