RBNZ Cuts Official Cash Rate to 2.25% and Signals End of Easing Cycle as New Zealand Economy Starts to Recover

On 26 November 2025, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by a further 25 basis points to 2.25%, taking interest rates to their lowest level since mid‑2022 and likely marking the bottom of this long easing cycle. ^[1]

The move was widely expected – but the message around it was just as important as the cut itself.

Key points at a glance

OCR lowered from 2.50% to 2.25% in the RBNZ’s final Monetary Policy Statement (MPS) of 2025. ^[2]
The Monetary Policy Committee (MPC) voted 5–1 for the cut, with one member preferring to hold. ^[3]
RBNZ projections show the OCR bottoming near 2.20% in 2026, then gradually rising toward 3% – its estimate of a “neutral” rate – by 2028. ^[4]
Since August 2024, the bank has delivered 325 basis points of rate cuts to support an economy that has struggled through multiple quarters of contraction. ^[5]
Markets and major banks now see this as probably the last cut, barring a negative economic shock. ^[6]
New mortgage rates are falling, but savers are being pushed to hunt for better returns as deposit rates drift lower. ^[7]

RBNZ delivers another 25‑point cut – and hints the bottom is in

Meeting in Auckland for its last review of 2025, the RBNZ reduced the OCR from 2.50% to 2.25%, saying the cut would help underpin business and consumer confidence as the economy emerges from a shallow downturn. ^[8]

The decision was not unanimous. Monetary Policy Committee members debated between leaving rates unchanged and delivering a further 25‑point cut. Five voted to cut; one preferred to hold at 2.5%, reflecting concern about how much easing has already been delivered and the risk of reigniting inflation. ^[9]

In its statement, the RBNZ repeated a now‑familiar line:

“Future moves in the OCR will depend on how the outlook for medium‑term inflation and the economy evolve.” ^[10]

This wording keeps all options on the table – but the surrounding forecasts point strongly to a pause that could last well into 2026.

The cut also caps Governor Christian Hawkesby’s final meeting in charge before Swedish economist Dr Anna Breman takes over as governor on 1 December 2025. ^[11]

Inflation is easing, but spare capacity still justifies low rates

The RBNZ is cutting rates into an environment where headline inflation has already fallen back inside its 1–3% target band.

Annual consumer price inflation reached 3% in the September quarter, right at the top of the band. ^[12]
With the economy operating below its potential – what economists call “spare capacity” – the bank expects inflation to drift down to about 2% by mid‑2026, bang on the midpoint of its target. ^[13]

Weak growth has created that spare capacity. Since mid‑2024, unemployment and broader measures of labour under‑utilisation have climbed, and firms report it is now relatively easy to hire workers. ^[14]

Kiwibank economists note that the output gap – the difference between actual and potential output – remains clearly negative and that the RBNZ now expects the economy to grow only 0.2% in 2025, far below trend, before improving in 2026. ^[15]

In other words, inflation is no longer the main problem. The bigger risk, from the central bank’s point of view, is a faltering recovery and persistently weak demand.

Forecast track shows OCR near the trough at 2.2%

Where markets and analysts are laser‑focused is the RBNZ’s forward path for the OCR, updated in today’s Monetary Policy Statement and unpacked in fresh research notes.

Westpac’s post‑meeting analysis highlights several key changes: ^[16]

The RBNZ’s forecast track now bottoms at 2.20% in Q2 2026, slightly below today’s rate but only marginally lower.
From that trough, the OCR is projected to edge higher from mid‑ to late‑2026, with the first hike pencilled in around the middle of next year.
By the end of 2028, the OCR is seen drifting back toward 3%, which the RBNZ views as the “neutral” rate – neither stimulating nor restraining the economy.

Westpac’s chief economist for New Zealand, Kelly Eckhold, interprets this as a “neutral bias”: the Bank isn’t declaring the easing cycle definitively over, but the bar for more cuts has been set high. Westpac’s house view is no further OCR reductions, with a gradual hiking cycle starting late in 2026. ^[17]

The Canberra Times reaches a similar conclusion, describing today’s move as likely “the last” in the cycle and noting that the updated track suggests cuts have gone about as far as the RBNZ is willing to take them. ^[18]

Economists at ASB and ANZ go further: unless the economy is hit by an unexpected negative shock, they do not expect the OCR to drop below 2.25%. ^[19]

Kiwibank’s team are slightly more cautious. They argue the RBNZ has clearly reduced the probability of additional cuts, but still keep the chance of another move in February at “roughly 50/50”, depending on how data evolve over the summer. ^[20]

A “hawkish cut”: markets hear the end of easing

Financial markets had almost fully priced in a 25‑basis‑point cut going into today’s meeting. The surprise came from the tone.

Reuters and other market outlets describe the decision as a “hawkish cut”: rates went down, but the message pointed firmly away from further easing. ^[21]

Key market reactions:

The New Zealand dollar jumped about 1% against the US dollar, trading around US$0.57 after the announcement – its highest level in more than a week. ^[22]
Two‑year swap rates rose roughly 8 basis points, reflecting expectations that the OCR will now be on hold for a long time. ^[23]
Market pricing for any further cuts dropped sharply, with overnight index swaps implying only around a 20% chance of another move lower. ^[24]

The reaction underscores an important point: interest rates are now low, but the easing cycle is likely over unless the economy takes a darker turn.

What the new OCR means for mortgages, renters and savers

For households, the immediate question is simple: what does 2.25% mean for my home loan and my savings?

Home loan borrowers

Lower OCR levels have already started to flow through to mortgage pricing:

New Zealand’s major banks moved quickly to trim key home loan rates following the decision, adding to earlier reductions made in anticipation of today’s cut. ^[25]
RBNZ and interest.co.nz data show the average mortgage rate has dropped to around 5.4%, with a further decline toward about 4.7% by late 2026 if current market pricing holds and a large chunk of fixed loans re‑set at lower levels. ^[26]

That will ease monthly repayments for many households over the next 12–18 months, freeing up income for other spending or debt reduction.

Renters and the housing market

So far, lower rates have not sparked a new housing boom. House prices nationally have been broadly stable, held in check by modest population growth, earlier price falls, and tighter lending rules like debt‑to‑income restrictions. ^[27]

The RBNZ expects only moderate house price growth over the next few years, roughly in line with income growth. For renters, that reduces the risk of another surge in property prices feeding through into higher rents, though rental pressures will still depend heavily on local supply and migration trends. ^[28]

Savers

The downside of cheaper borrowing is obvious: returns on savings accounts and term deposits are likely to fall further.

The RBNZ notes that the OCR directly influences the rates banks pay on deposits and charge on loans. When the OCR is cut, deposit rates tend to follow, often with a lag. ^[29]

Savers looking for higher yields are already being pushed toward longer‑term deposits, bonds, or higher‑risk investments, a trend that is likely to continue if the OCR stays near current lows for several years.

Economy on the mend – but still fragile

The big question behind today’s decision is whether New Zealand is finally turning the corner after a stop‑start recovery.

Recent data and RBNZ projections paint a picture of tentative improvement:

The economy has contracted in three of the last five quarters, but the RBNZ now expects modest positive growth of about 0.4% in Q3 and 0.7% in Q4. ^[30]
Business surveys and the bank’s own business visits point to demand that is weak but stabilising, with some early signs of improved labour demand and hours worked. ^[31]
Exporters, especially in meat and dairy, are benefiting from high commodity prices and a weaker Kiwi dollar, boosting rural incomes even as domestically focused sectors like construction and retail remain subdued. ^[32]

Kiwibank describes 2025 as a “two‑speed economy”: rural regions tied to export industries are slowly improving, while many urban and consumer‑dependent sectors are still stuck in the doldrums. ^[33]

The RBNZ shares a cautiously optimistic view. It expects the combination of lower mortgage rates, strong export prices and stabilising labour markets to narrow the output gap and lift growth through 2026, while inflation glides back to the 2% target. ^[34]

Leadership change: Anna Breman inherits a low‑rate, high‑expectation environment

Today’s decision also effectively hands the keys of monetary policy from Christian Hawkesby to his successor, Dr Anna Breman.

Breman, currently First Deputy Governor of Sweden’s Riksbank, will become RBNZ governor on 1 December 2025, serving a five‑year term. ^[35]
She will be the first woman and the first foreign national in nearly a century to lead New Zealand’s central bank. ^[36]

Her appointment follows a period of intense scrutiny of the RBNZ’s performance during the pandemic and subsequent inflation shock. Commentators note that she brings a combination of academic expertise and practical policy experience, having previously served as chief economist at Swedbank before joining the Swedish central bank’s executive board. ^[37]

Breman will inherit:

An OCR likely at or very near its trough.
A central bank that has already delivered aggressive tightening and then equally aggressive easing within just a few years. ^[38]
A political environment where both the government and the public expect clear communication about how the RBNZ balances inflation, employment and financial‑stability goals. ^[39]

How she navigates that tightrope – and whether she tweaks how the Bank explains its decisions – will be a major theme for markets in 2026.

Key risks that could still move New Zealand interest rates

Even if today’s cut proves to be the last of the cycle, interest rates are not on autopilot. The RBNZ and private‑sector economists highlight several risks that could force a change of course: ^[40]

Downside risks (could trigger more cuts)

A slower‑than‑expected recovery, with businesses and households staying cautious despite lower rates.
Continued weakness in domestic sectors such as construction, retail and hospitality.
A sharper‑than‑expected slowdown in global growth, especially if AI‑related investment cools or trade tensions escalate.

Upside risks (could trigger earlier hikes)

A faster rebound in house prices and household spending, driven by cheaper mortgages and improved confidence.
Stronger‑than‑expected on‑farm investment if high commodity prices persist and capital is returned to dairy farmers in 2026.
The possibility that firms try to rebuild profit margins quickly, raising prices more aggressively as demand recovers.

For now, the RBNZ judges these risks as broadly balanced, which is why it is signaling an extended period of steady rates at low levels rather than more aggressive easing.

What to watch before the next OCR decision

The next key milestone is the February 2026 Monetary Policy Statement, when the RBNZ and Governor Breman will reassess the outlook. ^[41]

Between now and then, several data points will be crucial:

December‑quarter inflation – does it confirm that price pressures are easing toward 2%?
GDP and labour market data – do early signs of recovery turn into a clearer upturn in growth and employment?
Housing and credit trends – do lower mortgage rates feed into stronger demand, or do households stay focused on paying down debt?

For households and businesses, the takeaway from today is relatively simple:

Interest rates are low and likely to stay low for a while.
Further cuts are possible but unlikely unless the economy disappoints sharply.
The next move in the OCR – whenever it comes – is more likely to be up, not down.

This article is for general information only and does not constitute financial or investment advice. Always consider your own circumstances and, if necessary, seek professional guidance before making financial decisions.

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