Official cash rate cut to 3%

The Reserve Bank of New Zealand has cut the official cash rate (OCR) by 25 basis points to three per cent.

The bank’s monetary policy committee voted for the change on August 20 after noting annual consumers price index inflation is currently around the top of its one to three per cent target band. 

However, it adds that with spare capacity in the economy and declining domestic inflation pressure, headline inflation is expected to return to around the two per cent target midpoint by mid-2026.

In announcing the OCR cut, the bank says New Zealand’s economic recovery stalled in the second quarter of this year. 

“Spending by households and businesses has been constrained by global economic policy uncertainty, falling employment, higher prices for some essentials, and declining house prices,” it explains. 

“There are upside and downside risks to the economic outlook. Cautious behaviour by households and businesses could further dampen economic growth. 

“Alternatively, the economic recovery could accelerate as the full effects of interest rate reductions flow through the economy.” 

The bank notes further data on the speed of New Zealand’s economic recovery will influence the future path of the OCR. 

“If medium-term inflation pressures continue to ease as expected, there is scope to lower the OCR further,” it adds.