The Reserve Bank of New Zealand (RBNZ) delivered a widely expected 25-basis-point cut to the official cash rate (OCR) to a three-year low on Wednesday 26 November, but left the door open for a further rate cut next year if the economic recovery underwhelms.

Since August last year the RBNZ has aggressively cut the OCR from the cycle peak of 5.5% to 2.5% at its October policy meeting – and now 2.25% - as it has tried to stimulate a faltering economy while also looking to control growing inflation pressures, which have edged to the top of the RBNZ's 1%-3% target band.

Partial indicators over the past two months have pointed to the economy turning the corner after it effectively stalled in the first half of the year. Most economists said they did not expect the RBNZ to cut the OCR significantly next year barring a global shock, but noted it would be politic to leave the door open to that possibility in order to head off a potential U-turn in monetary conditions over the summer.

November’s Monetary Policy Statement is the last of the year — and the final one under acting Governor Christian Hawkesby before Anna Breman takes over in December.

Markets largely factored in Wednesday’s downward move but are also pricing in a 50:50 chance the RBNZ will cut the OCR to 2% over time. This ratchets up attention on Breman’s first meeting in February — and whether green shoots in the economy will be enough to keep rates on hold.

In its written decision the RBNZ said that future moves in the OCR would depend on how the outlook for medium-term inflation and the economy evolved.

The reserve bank said economic activity was weak over mid-2025 but was picking up. Annual consumers price inflation increased to 3% in the September quarter, however, with spare capacity in the economy, inflation is expected to fall to around 2% by mid-2026. 

Lower interest rates were encouraging household spending, and the labour market was stabilising. The exchange rate had fallen, supporting exporters’ incomes. 
The bank said that risks to the inflation outlook were balanced. Greater caution on the part of households and businesses could slow the pace of New Zealand’s economic recovery. Alternatively, it said, the recovery could be faster and stronger than expected if domestic demand proves more responsive to lower interest rates. 

Raine & Horne New Zealand General Manager James Shepherd welcomed the cut, noting RBNZ commentary that previous OCR falls had reduced borrowing costs and mortgage rates and that the average yield on mortgages had fallen to 5.4%.

With close to 40% of fixed rate mortgages due to reprice over the December and March quarters, the average mortgage yield was expected to fall further to 4.7% by September 2026 based on current market pricing, the bank said.

“That means there will be more money in Kiwi pockets and thousands more Kiwis will be able to explore the opportunity presented by lower rates to buy a new home. For home buyers the arrow is definitely pointing up,” James said.

Whether you want to buy, sell or rent a property, don’t hesitate to contact your local Raine & Horne office.