Rate cut a shoo-in as Kiwi economy searches for spark
A new interest rate cut is predicted in the New Zealand central bank’s final interest rate review this year.
The question is; How low does the country’s Central Bank expect to keep the official cash interest rate into 2026?
All will be revealed when the RBNZ meets on Wednesday with expectations it will cut another 25 basis points, taking the standard to 2.25 per cent.
That’s down from 5.5 percent last August, a streak of 300 basis points to date, including a double 50 basis point cut in October.
“This week’s cut to 2.25 per cent has been perfectly priced in by markets and requires little justification. The Kiwi economy still needs further support,” Kiwibank chief economist Jarrod Kerr said.
The economic part of the equation is clear: New Zealand experienced a 0.9 percent contraction last quarter, while unemployment reached 5.3 percent, an eight-year high.
But with headline inflation rising to 3.04 per cent and food inflation rising to 4.7 per cent, the bank risks a fresh inflation shock if it continues to cut to revive the Kiwi economy.
All eyes will therefore be on the latest OCR tracking map to see whether the bank believes it will continue to cut in 2026.
ANZ chief economist Sharon Zollner said 25 basis points was “key” and a bottom of 2.15-2.20 per cent made another rate cut in 2026 more likely.
“When we sampled market prices… we found that in May the OCR bottomed out at 2.11 percent,” he said.
Mr Kerr slammed the RBNZ’s hawkish stance through 2025, arguing the bank should cut rates more sharply to reach 2.5 per cent and even consider another 50 basis points on Wednesday.
“Why don’t we try to get us out there, safely, to boost confidence? This is exactly the kind of shock therapy the economy needs,” he said.
The bank is very confident that it is doing adequate expansion on an ongoing basis.
The previous tracking released in May saw the bottom figure at 2.9 percent, and the updated tracking in August signaled that the bottom of the cycle would be 2.5 percent.
The meeting will be the last under Christian Hawkesby’s chairmanship, with Swedish appointee Anna Breman becoming governor on December 1, with the first monetary policy decision due in February 2026.
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