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A widely expected move and the lowest rate since October 2022, the Reserve Bank of New Zealand (RBNZ) dropped the Official Cash Rate (OCR) by 25 basis points on May 28, 2025, to 3.25%. Not everyone agreed on the decision, which was the third OCR announcement of 2025; the Monetary Policy Committee (MPC) favored the cut 5-1, therefore showing inside discussion over the right policy reaction to present economic uncertainties.
The rate cut results from the RBNZ's judgment that CPI inflation is within the target range of 1–3%, presently approximately 2.5%, combined with considerable idle capacity in the economy. The RBNZ expects inflation to slowly revert to the 2% midpoint target over the medium term, despite recent increases. Weaker economic prospects brought on by global uncertainties, especially the effects of increased US tariffs and policy uncertainty, is anticipated to weigh on New Zealand's growth and price pressures.
Looking forward, the RBNZ predicts the OCR to drop further to around 2.9% by the end of 2025, possibly reaching as low as 2.85% in the first quarter of 2026 . This points toward a careful easing trajectory with perhaps one or two more cuts by early 2026 to help the economy in light of world uncertainties. Moreover, the RBNZ pointed out that after June 2025 roughly half of New Zealand's mortgages will be refixed, thereby enabling many families to profit from cheaper borrowing rates.
