Banks rush to cut rates after RBNZ slashes OCR 50bp to 4.25%

ASB Bank and Kiwibank immediately published cuts in their lending and deposit rates while Bank of New Zealand swiftly followed. (See the rates change here)

Kiwibank cut its mortgage test rate from 8% to 7.5% “to provide greater financial flexibility for our customers” from Monday, Dec 2 and ASB cut its test rate from 8% to 7.6% from the same date.

With the 50 basis point cut from 4.75%, the central bank trimmed its future OCR projections through to the September quarter of 2026 when it expects it to be 3.2%, down from 3.35% in its last forecasts published in August. It expects the OCR to bottom at 3.1% in the March quarter of 2027.

The central bank has lowered its forecast for the December quarter consumers price index to 0.4% and the annual rate to 2.1% from 0.5% and 2.3% previously respectively.

RBNZ now expects quarterly economic growth to come in at 0.6% every quarter from the March quarter of 2025 through to the June quarter of 2027.

It also expects the annual inflation rate to rise to 2.4% in the December quarter of 2025 before starting to fall again, reaching the mid-point of its 1% to 3% target by the first quarter of 2025 and then again by the June quarter of 2027.

The central bank expects unemployment to peak at 5.2% in the first quarter of 2025 and to then begin to decline slowly to 4.3% by the June quarter of 2027.

“Economic activity in New Zealand remains subdued and output continues to be below its potential.,” RBNZ said.

With inflation returning to the target range, puts the monetary policy committee “in the best position to respond to any shocks to inflation.”

Ahead of the statement, the Finance and Mortgage Advisers Association of New Zealand said any cut would be a welcome Christmas present but that “banks can’t be scrooges and must pass on full cut.”