The Reserve Bank of New Zealand has reduced the Official Cash Rate (OCR) by 25 basis points to 2.25%, continuing the gradual easing cycle that began in 2024.
This latest decision reflects growing confidence that inflation is easing, while the wider economy is still in the early stages of recovery. At the same time, the Reserve Bank has been clear that future OCR movements will depend on how inflation and economic conditions unfold.
Inflation is easing, but pressures haven’t disappeared
Annual consumer price inflation currently sits at 3%, which is at the top of the Reserve Bank’s 1–3% target band. Encouragingly, inflation is expected to ease back toward 2% by mid-2026.
The Reserve Bank noted that:
- Core and non-tradables inflation continue to trend lower
- Recent increases in petrol, food, energy costs and council rates have temporarily pushed headline inflation higher
- As these pressures ease, inflation is expected to settle closer to the long-term target
While household inflation expectations have fallen, they remain higher than what New Zealanders were used to before the recent inflation surge.
The economy is stabilising, but recovery is uneven
Economic activity was weak through mid-2025, and GDP fell by 0.9% in the June quarter. However, the Reserve Bank believes this likely overstated the true level of weakness.
Recent indicators suggest:
- Modest GDP growth returning in the September quarter
- Early signs of stabilisation in the labour market
- Job vacancies and total hours worked beginning to rise
- Household spending slowly responding to lower interest rates
At the same time, there remains significant spare capacity in the economy, meaning many businesses are still operating below full potential, and unemployment remains elevated by recent standards.
Mortgage rates are already adjusting
Following the OCR decision, some major banks moved quickly to adjust floating and revolving home-loan rates:
- Kiwibank cut variable and revolving loan rates by 15 basis points
- ANZ reduced floating and flexible rates by 20 basis points
These changes apply to both new and existing customers, depending on their current interest rate type and timing.
What this means in practice is that borrowers on floating or variable rates may see some near-term relief, while those on fixed rates will be unlikely to notice changes until their fixed terms expire.
What the Reserve Bank is signalling about future cuts
The Reserve Bank has now signalled a more cautious stance on future easing.
While the door has not been closed to further rate cuts, the Bank has made it clear that:
- The current OCR level may now remain on hold for a period
- Further reductions would depend on whether the economic recovery underperforms expectations
- Inflation returning sustainably to the 2% target midpoint remains the key priority
According to Interest.co.nz, updated forecasts now show the OCR possibly reaching a low point of around 2.20% by mid-2026, slightly lower than previously expected.
What this could mean for households
For households, the OCR cut may influence:
- Floating and revolving mortgage rates, which can move relatively quickly
- New fixed-rate mortgage offers, which may become more competitive over time
- Savings and term deposit rates, which generally reduce as interest rates fall
At the same time, the Reserve Bank expects:
- House price growth to remain moderate, broadly aligned with income growth
- Financial stress indicators and loan arrears to continue easing
- The wider recovery to remain gradual rather than fast
Why advice still matters in a changing rate environment
While interest rates are now trending lower than their recent peak, the Reserve Bank has been clear that uncertainty remains both domestically and globally. Inflation risks, overseas economic developments, and the pace of New Zealand’s recovery will all influence how the next phase unfolds.
That’s why it can be helpful to talk through:
- Whether your current loan structure still suits your situation
- How upcoming refixing dates might affect your cashflow
- What lower rates could mean for debt-reduction strategies
- How broader economic changes may affect your longer-term plans
A conversation with your mortgage adviser can help put this latest OCR decision into the right context for your own circumstances. If you’d like to talk it through, feel free to get in touch with us.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.