Economists divided on likely size of this week’s expected OCR cut
Monday, 6 October 2025
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Economists are divided on whether the Reserve Bank will cut the 3% official cash rate by 25 basis points or 50 when it releases the results of a review on Wednesday.
ANZ, the country’s largest bank, believes the smaller rate cut is the most likely, but is putting “a 35% chance” on a 50bp cut which would take the cash rate down to 2.5%.
Capital Economics is among those tipping a 50bp cut, although it acknowledges financial markets “aren’t fully convinced”.
Almost all forecasters had been expecting a smaller 25bp cut before Stats NZ last month reported a shock 0.9% drop in economic activity in the three months to the end of June.
Many believe the actual GDP drop was probably much smaller, with the official figure reflecting anomalies in the way Stats NZ seasonally-adjusts its data.
But, even accounting for any statistical quirks, the reported fall in economic activity was a surprise and is seen as pointing to there being more spare capacity in the economy than the Reserve Bank had believed.
Many economists are confident the economy has been improving in the current quarter, but the evidence remains somewhat inconclusive and the bounce-back does not appear strong.
ASB and Westpac changed their forecast to a 50bp rate cut being announced on Wednesday, after last month’s GDP drop, but BNZ is staying with ANZ in the 25bp camp.
The forecasts reflect different views on whether the OCR will bottom out at 2.5% or 2.25% when the Reserve Bank issues its final monetary policy statement of the year on November 26.
ASB economist Wesley Tanuvasa said the economic hole was big.
“With New Zealand lacking any real economic tailwinds, the onus falls on the OCR to support the economy.”
Westpac chief economist Kelly Eckhold said quickly moving the OCR into stimulatory territory would “generate confidence and activity ahead of the important Christmas and summer trading period”.
“I’ve been counselling a more cautious approach consistent with the end of the easing cycle potentially getting nearer. But events have overtaken that,” Eckhold said.
“Where we stand now is a situation where the level of excess capacity has grown instead of shrunk in the last three to six months.”
ANZ chief economist Sharon Zollner said a 25bp cut this weekwould provide the most “optionality”.
“With dovish messaging, that leaves open the option of a 50bp cut in November and thereby prevents monetary conditions tightening on the day.”
A quarterly survey of business sentiment due to be released on Tuesday by the New Zealand Institute of Economic Research had the potential to tip the balance towards a larger rate cut if it suggested a markedly greater degree of spare capacity in the economy, Zollner said.
BNZ economist Doug Steel — who is predicting a 25bp cut and a year-end OCR rate of 2.5% — made clear that was based on BNZ’s expectation of a 0.7% bounce-back in GDP in the current quarter, as quirks in the data ironed out and factories upped production after conserving winter power.
“We think GDP in the third quarter will surprise the Reserve Bank to the upside by a similar amount that it surprised on the downside in the second quarter,” he said.
The appointment of a new governor for the Reserve Bank — Swedish central bank deputy governor Anna Breman — may add a little to the second-guessing around the rate review.
Zollner has set out competing arguments for why the impending changing of the guard might make the bank more or less conservative in its next two upcoming meetings, ahead of Breman taking up her role in December.
Steel observed Breman did not talk about current monetary policy at a press conference announcing her appointment while noting the challenging global environment and saying the economy “won’t get strong growth without low, stable inflation”.
“It all sounded very orthodox. We see no clear implications for the broad direction of monetary policy,” he said.
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