Reserve Bank holds official cash rate at 3.25%

Wednesday, 9 July 2025

The Reserve Bank has left the official cash rate on hold at 3.25%.

The decision marks the first time in a year that the central bank has reviewed the OCR and decided to leave it on hold, rather than cut.

It breaks a streak of six consecutive reductions that has taken the key interest-rate down from its recent, post-Covid peak of 5.5%.

The central bank said that if medium-term inflation pressures continued to ease as projected, it did still expect to lower the OCR further.

Global growth was expected to slow over the second half of the year reflecting “the uncertain consequences of trade protectionism” and, on balance, increased protectionism was expected to result in less inflationary pressure for New Zealand, it said.

But it also described the economic outlook as remaining highly uncertain.

The future path of the OCR would be influenced by the speed of New Zealand’s economic recovery, the persistence of inflation and the impacts of tariffs, it said.

Finance Minister Nicola Willis said central banks were reacting cautiously to global uncertainty but the effects of previous rate drops would continue to flow-through to the economy over the coming months.

“Kiwis are already experiencing lower mortgage repayments off the back of previous OCR reductions. More will benefit when they re-fix their mortgage this year,” she said.

Previous expectations of a July rate cut faded fast late last month amid a slew of mixed economic data.

Most economists believe today’s pause will prove to be a delay rather than an end to the current cycle of monetary policy easing.

Capital Economics economist Abhijit Surya said the Reserve Bank’s comments were consistent with its May rate track, which implied the OCR would bottom out at 2.75%.

The Reserve Bank is due to release its next monetary policy statement on August 20, with many economists expecting it to cut the OCR to 3% then.

But turning points in monetary policy cycles can sometimes start with what seems at the time to be a mere delay.

ANZ chief economist Sharon Zollner noted the Reserve Bank’s commentary showed it had “robustly discussed a cut or a hold”.

Zollner said ANZ continued to expect a 25 basis point rate cut in August “with more easing to come after that”.

Most eyes are now likely to be on June-quarter inflation data that Stats NZ is due to release on Monday week.

That is expected to show inflation climbing from the March quarter, when it was officially recorded at 2.5% rather than 2.6% due to a calculation error.

Economists will be watching then for any signs that inflation could cause a rethink by unexpectedly breaching the top end of the Reserve Bank’s 1% to 3% target band.

The Reserve Bank said inflation was expected to increase in the June and September quarters towards the top end of its target band, before later falling back to about 2%.

Willis said she woke up thinking about the cost of living every day.

Measures such as improving supermarket competition and even reducing “red tape” on farms could help, she said.

The Government was also concerned to ensure people did not face major rate bills and was working on that, she said.

Opes Partners property economist Ed McKnight said ahead of the OCR review that even had the Reserve Bank bank cut the rate, that would have been unlikely to have resulted in massive cuts to mortgage rates.

Data showed a quarter of fixed-term loans were due to be refixed in the next three months, he said.