The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) by an aggressive 50 basis points (bp) from 3% to 2.5%, at its 8 October policy meeting, following a 25bp cut in August.

With some banks having already lowered mortgage interest rates in anticipation of the announcement and with more expected to follow, the development is good news for borrowers due to reset their mortgages before the end of 2025 or in early 2026.

While some of the largest banks had predicted a 50-basis point, markets had factored in only a 30%-40% probability of this and economists were divided, believing the RBNZ would want additional inflation and employment data before opting for an extra 25 bp cut to stimulate growth.

The New Zealand economy has contracted in three of the last five quarters and GDP shrank more than expected in the three months to June. Since August last year the RBNZ has aggressively cut the OCR from the cycle peak of 5.5% and had strongly indicated it would lower the OCR to 2.5% by the end of the year.

In the Monetary Policy Statement issued after the October 8 meeting the central bank said reducing the OCR by 50bps would send a clear signal that supported consumption and investment.

The bank said inflation was currently around the top of its 1-3% target band but was expected to return to the 2% mid-point during the first half of 2026 and that it remained open to further cuts to the OCR as required for inflation to settle sustainably near the 2% target mid-point in the medium term. 

"Household consumption is recovering, partly because of lower interest rates, and elevated commodity prices continue to support the primary sector," the bank said, noting lower interest rates would support a recovery in growth.

“The average interest rate on existing mortgages is expected to continue to decline over the coming year as mortgage holders re-fix onto lower rates, reducing debt servicing costs for households. Construction activity is projected to recover from mid-2026 as demand for dwellings recovers and house price growth resumes,” the bank added. 

Raine & Horne New Zealand General Manager James Shepherd said the RBNZ’s latest 50bp cut signalled its determination to support economic growth as much as possible while safeguarding against the risk of increased inflation. “This should reassure home buyers and investors that lending conditions will continue to be supportive of property purchases and the medium-term outlook for price growth is positive, making the final quarter of the year a great time to enter the market,” James said.

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