OCR set for latest review, but what can we expect?

Wednesday, 8 October 2025

The Reserve Bank is set to announce its latest review of the Official Cash Rate, which they do seven times yearly.

At 2pm on Wednesday, the central bank will reveal the decision of its monetary policy committee, with the current rate set at 3%.

In recent weeks there has been bad news in the economy with a negative GDP result of -0.9% growth for the last quarter.

That result fuelled speculation the Reserve Bank may have to cut the OCR more aggressively to provide stimulus to the economy.

So what happened at the last OCR update?

The last OCR update was on August 20, and it was set at 3%, a reduction of 25 basis points.

At the time, the bank 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%.

Ultimately, it was decided to reduce the rate to 3% in a majority 4-2 vote.

Acting Reserve Bank Governor Christian Hawkesby said the decision to cut the OCR was due to inflation being at the top of their 1-3% target range.

The decision was welcomed by Finance Minister Nicola Willis, who said falling interest rates were good for growth, businesses, jobs and Kiwis paying off their mortgages.

Is another drop in the OCR on the cards this time around?

The Reserve Bank has hinted there could be two further reductions this year, especially if medium-term inflation pressures continue to ease.

The OCR has already fallen from 5.5% to 3% in a year, and the Reserve Bank has previously said it expects it to reach 2% by the middle of 2026.

In 2025, the OCR has dropped 75 basis points through five updates, with drops on three occasions.

Debate around the size of any possible drop continues to divide

If a drop takes place, debate has divided economists and banks around the size and whether it will be 50 or 25 basis points (bp).

ANZ believes a smaller cut is the most likely, telling The Post that a 50bp cut was only a 35% chance.

They, and BNZ, are predicting a 25bp cut, with the bank saying this was due to a forecast bounce back of GDP growth.

ASB and Westpac, on the other hand, are saying a 50bp cut was on the cards, and they are adjusting their forecasts to account for this.

Westpac chief economist Kelly Eckhold told The Post that moving the OCR into stimulatory territory would “generate confidence and activity ahead of the important Christmas and summer trading period”.

Kiwibank also wants a bigger cut, telling RNZ that an OCR of 2.5% was needed to encourage businesses to take on more risk by investing or hiring.

The different predictions reflected views on whether the OCR will finish the year at 2.5% or 2.25%, with one more update in November.

OCR update comes amid changes at the Reserve Bank

The latest update comes against a backdrop of change at the Reserve Bank following the recent announcement of the new governor.

In September, Swedish economist Dr Anna Breman was announced as the replacement for the acting governor, Christian Hawkesby, whose term runs until November 30.

Breman will start her new role on December 1, meaning the final OCR review of the year on November 26 will fall under Hawkesby’s tenure.

Breman’s appointment came nearly six months after the resignation of former Governor Adrian Orr.

She has already said her priority as governor will be to deliver low and stable inflation.