Monetary policy review

OCR cut to 2.25% looks like the last

26 Nov 2025

Our take on the latest Monetary policy review (Wed 26 Nov 2025)

OCR down by 25bp to 2.25%

Bank steers away from signalling further cuts

GDP growth forecast to accelerate to 2.8%pa by Mar 2027

The Reserve Bank met market expectations with a 25-point cut to the official cash rate (OCR) at the final review of the year. However, the decision was not unanimous, with one member of the Committee voting to leave the OCR unchanged.
The Bank has shied away from indicating any further cuts, stating that “future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolve.” The forecasts in the latest Monetary Policy Statement show the OCR bottoming out at 2.2% in the June 2026 quarter which, at face value, implies just a 20% chance of any further cuts in this cycle.
October’s statement by the bank had emphasised the economy’s weakness and many of the downside risks around economic growth. Today’s statement is more positive, noting that economic activity is picking up, lower interest rates are encouraging household spending, the labour market has stabilised, and the exchange rate is supporting exporters’ incomes.
Balanced against these positive signs is the knowledge that the housing market and consumer spending have been less responsive to interest rates cuts so far than might have been expected, and businesses have been cautious in the face of uncertainty caused by international events. This more limited response could persist into 2026, but the Committee also discussed the possibility of a faster recovery if continued interest rate cuts spark the economy into life next year.

Reserve Bank OCR forecasts, quarterly averages

The Reserve Bank’s unwillingness to signal any further interest rate cuts in 2026 is partly a reflection of more positive economic indicators starting to come through over the last few weeks. The Committee is also likely to have been careful to ensure that today’s statement left the future policy direction open so that incoming Governor Anna Bremen is not unduly constrained at her first Monetary Policy Review in the new year.
The Bank’s forecasts see headline inflation easing to 2.1%pa by September next year, reinforcing expectations that the current lift in inflation to 3.0%pa is temporary. However, with year-end GDP growth forecast to reach 2.8%pa by the March 2027 quarter, spare capacity in the economy could reduce by two-thirds over the next 18 months. So if the recovery progresses as expected, there is little scope for inflation to ease below the 2%pa midpoint of the target band.
Given today’s statement, we are comfortable with our position that 2.25% will be the low point for the OCR in this cycle. By the time of the next review on 18 February, we expect further positive indicators will make it clear the economy is recovering and that no further cuts are necessary.
The Bank’s forecasts show interest rates starting to trend upwards by the first half of 2027, as activity levels get closer to the economy’s potential output. This outlook is broadly consistent with our view that the OCR will return to a neutral level of 3% by mid-2027.

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