The RBNZ projects lower OCR levels through 2026, sees inflation returning to target by mid-2026, and highlights spare capacity, stalled growth, and cautious behavior as downside risks.
STATEMENT:
-
RBNZ sees the OCR at 2.71% in December 2025 (previously 2.92%).
-
OCR projected at 2.59% in September 2026 (previously 2.9%).
-
OCR projected at 2.62% in December 2026 (previously 2.94%).
-
OCR projected at 2.85% in September 2028.
-
Annual CPI expected at 2.2% by September 2026 (previously 2.1%).
-
Trade-weighted NZD seen at 68.0% in September 2026 (previously 69.0%).
-
RBNZ said if medium-term inflation pressures continue to ease as expected, there is scope to lower the OCR further.
-
Statement noted spare capacity in the economy and declining domestic inflation pressure, with headline inflation expected to return to the 2% midpoint by mid-2026.
-
New Zealand’s economic recovery stalled in Q2 of this year.
-
The RBNZ highlighted both upside and downside risks to the economic outlook.
-
It warned cautious household and business behavior could dampen growth further.
-
Alternatively, recovery could accelerate as the effects of rate cuts flow through the economy.
MINUTES:
-
By a majority of 4 votes to 2, the committee agreed to decrease the OCR by 25bp to 3%.
-
On 20 August, the committee voted on reducing the OCR by either 25bp or 50bp.
-
The case for a 25bp cut was based on upside and downside risks being broadly balanced.
-
The committee expects to lower the OCR further if medium-term inflation pressures ease as projected.
-
Cutting 25bp now allows incremental adjustment in response to new information.
-
The case for a 50bp cut emphasized declining inflationary pressure and significant spare capacity.
-
Some members stressed the risk that global policy uncertainty could persistently weigh on domestic consumption and investment.
-
Inflation is projected to rise to 3% in the September quarter, with a material possibility it rises above the target band.
-
A larger cut might have disrupted that dynamic and provided clearer positive signals for consumption and investment.
-
The committee discussed three policy options: holding the OCR at 3.25%, cutting by 25bp to 3%, or cutting by 50bp to 2.75%.
This article was written by Arno V Venter at investinglive.com.