Reserve Bank delivers 0.25% interest rate cut, but it looks like the last

Wednesday, 26 November 2025

The Reserve Bank has voted to cut the Official Cash Rate by 25 basis points to 2.25% at its last monetary policy meeting of the year, as economists had forecast, but in a split decision.

One of the six members of the monetary policy committee voted to hold the OCR at 2.5% and the bank’s latest forecasts suggest it doesn’t currently foresee any further rate cuts to come in the current monetary policy cycle.

ANZ chief economist Sharon Zollner said the central bank appeared to be “done and dusted” with cuts.

Finance Minister Nicola Willis indicated that should be seen as a vote of confidence an economic recovery was underway

The bank described the risks to the inflation outlook as “balanced”, a signal that it had an open mind about how its thinking may develop from here.

Speaking to the media in Auckland, acting governor Christian Hawkesby said that if the OCR was to change early next year it was “more likely to go down than up”; the so-called ‘OCR track’ it publishes indicated a low of 2.2% in the cash rate.

But the bank has historically not altered the OCR in steps of less than 25 basis points and Hawkesby said that while “every meeting was a new meeting” and it kept its options open, the forecast was consistent with there being no changes next year.

“We're looking forward into next year. We want to be in a position where the Reserve Bank and monetary policy is off the front pages. Bring back ‘boring’ — let everything else drive the economy, and we can sit in the back seat.”

The New Zealand dollar rose about half a US cent in the aftermath of the announcement, a clear signal that financial markets saw it as hawkish compared to expectations.

Hawkesby indicated that reaction had come as no surprise to the bank, and that it had expected some “volatility”.

The rate cut, which the bank had signalled could be in the wings when it last reduced the OCR in October, comes despite growing signs a tepid economic recovery is under way and some doubts the extra stimulus is necessary.

The next scheduled opportunity to alter the OCR will be on February 18 — after the usual summer hiatus — when the bank’s new governor for the next five years, Swedish economist Anna Breman, will be presiding.

Willis said it was clear previous reductions in the OCR were flowing through into stronger economic activity.

“The bank is forecasting falling inflation and rising growth. Its forecasts support the widespread consensus that the economy is strengthening,” she said.

The Reserve Bank said significant spare capacity remained in the economy, but economic activity was recovering.

It made only very minor tweaks to the forecasts it last issued in August on the outlook for inflation and unemployment, continuing to tip unemployment would not rise above its current level of 5.3%, and inflation would quickly drop back from 3% to about 2.2% for most of next year.

“Committee members discussed an improvement in near-term indicators of economic activity from their lows in the June quarter, suggesting a return to modest GDP growth in the September quarter. Feedback from recent business visits also suggest that, while activity remains weak, demand has stabilised.”

Richard Holden, chief economist at accounting body Chartered Accountants Australia and New Zealand, said the rate cut would provide further stimulus to support the economy.

“Given that inflation is at the top of the target band, today’s cut was as far as the Reserve Bank could go and may well be the last cut in this interest-rate cycle,” he said.

Willis told The Post she knew many New Zealanders would have liked the recovery described by the Reserve Bank to have come sooner.

“There is no question that New Zealand has been through a very difficult time economically. But what I do see in today’s data and these independent forecasts is a very solid basis to think that growth is ahead of us,” she said.

“There are a number of positive things across the economy that are leading the consensus of forecasters to say that they see next year as a year for stronger growth. They see rising exports, they see investment in productive projects, they see more job creation.”

Labour finance and economy spokesperson Barbara Edmonds said Prime Minister Christopher Luxon promised to fix the economy and the cost of living but had made both worse.

“He has no plan to turn the economy around and is instead relying on the Reserve Bank to do the job he can’t,” she said.