RBNZ cuts OCR to 5.25% and forecasts another cut this year

However, RBNZ's latest forecasts imply a further 25 basis point cut by the end of the year – it has the OCR at 4.9% in the December quarter.

While most in the market had thought RBNZ ought to cut the OCR because the economy is so weak and inflation looks to be well under control, it had been divided on whether RBNZ actually would.

The NZ dollar immediately fell about a third of a US cent following the announcement while both Kiwibank immediately cut its mortgage rates in response and ASB quickly followed.

RBNZ cut its forecast for September quarter inflation to 0.8% from 1.3% previously but raised its December quarter forecast to 0.5% from 0.4%.

Its forecasts for inflation through both calendar years 2025 and 2026 were unchanged but its annual forecasts for the March and June quarters of 2025 fell to 2.2% from 2.8% and to 2.3% from 2.9% respectively.

The central bank is forecasting at least four OCR cuts through 2025 and another four through 2026.

The latest OCR forecasts are mostly dramatically lower than its last published forecasts in May when it was saying another OCR hike would be possible.

For example, it had said in May that the OCR would be 5.6% in the March quarter of 2025 and now it says it will be 4.6%. Similarly, it had previously said the OCR would be at 5.5% in the June quarter of 2025 and now it has it at 4.4%

It now says the OCR will be at 3.8% in the December quarter of 2025, down from its previous 5.1% forecast.

The central bank's media statement announcing today's change said nothing about why its OCR forecasts have so radically changed since May.

It said that inflation expecations, firms' pricing behaviour, headline inflation and a variety of core inflation measures “are moving consistent with low and stable inflation.”

Services inflation “remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity,” RBNZ says.