The Reserve Bank of New Zealand (RBNZ) has lowered the official cash rate (OCR) by 25 basis points to 3.00%, in a move widely anticipated by markets. The central bank indicated there is scope for additional cuts should inflation pressures continue to ease.
Headline inflation is forecast to return to around 2% by mid-2026. The monetary policy committee noted that consumer price index (CPI) inflation rose to 2.5% in the first quarter of 2025, with inflation expectations among firms and households also edging higher. However, it said core inflation is falling and spare capacity exists in the economy.
“These conditions are consistent with inflation returning to the mid-point of the 1 to 3 percent target band over the medium term,” the board said.
The committee projected that the OCR “will continue to be reduced” as a negative output gap exerts downward pressure on inflation. “This is offsetting price-setting behaviour, which is still elevated following the recent period of higher inflation,” it noted.
“We assume that price-setting behaviour continues to adapt to a low-inflation environment over the medium term,” the committee added.