Central Bank cuts rates in November

Latest bank decision: At its meeting on 26 November, the Central Bank decided to cut the Official Cash Rate (OCR) from 2.50% to 2.25%, taking total rate cuts to 325 basis points since August 2024.

Weak labor market and supportive inflation outlook underpin decision: The decision was influenced on one hand by weakness in the labor market, with the unemployment rate rising to a nine-year high of 5.3% in Q3. Moreover, though inflation is currently at the top of the Bank’s 1.0–3.0% target range, the Bank expects inflation to fall back towards the center of the range next year.

Further rate cuts on the cards: The Bank didn’t give explicit guidance on future monetary policy decisions. Our panelists are split on the outlook for 2026: Some see the OCR unchanged, others see cuts and a few see hikes. The Consensus forecast is for the cash rate to remain close to its current level.

Panelist insight: On the outlook, Goldman Sachs analysts said: “Looking ahead, we lean towards the RBNZ delivering a final 25bp rate cut at February’s meeting given benign trends in inflation and the considerable amount of spare capacity in the economy. However, we acknowledge heightened uncertainty around potential changes to the RBNZ’s reaction function under incoming Governor Breman and note key upcoming updates on GDP (18 Dec), CPI (22 Jan) and the labour market (5 Feb).” ANZ Bank analysts had a slightly different take: “Unless the economy is hit with some kind of unexpected negative shock, the OCR is not going any lower.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects New Zealand interest rate projections for the next ten years from a panel of 13 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for New Zealand interest rate.

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