RBNZ cuts OCR as economists eye more easing amid global uncertainty

Monetary policy easing welcomed by mortgage market

RBNZ cuts OCR as economists eye more easing amid global uncertainty

The Reserve Bank has cut the official cash rate by 25 basis points to 3.25%, offering relief to homeowners and prospective buyers amid ongoing economic uncertainty.  

This marks the second consecutive cut in the current easing cycle, as the RBNZ navigates softening growth, fiscal tightening, and international trade tensions. 

 

Leigh Hodgetts (pictured upper left), country manager of the Finance and Mortgage Advisers Association of New Zealand (FAMNZ), said the decision would bring comfort to borrowers. 

The lowering of the OCR by 0.25% to 3.25% is welcome news to borrowers and potential homeowners across New Zealand,” Hodgetts said. 

First-home buyers gain confidence as rates fall 

Hodgetts noted that FAMNZ members are seeing more first-home buyers enter the market. 

“Finance and Mortgage Advisers Association of New Zealand members have reported a steady stream of first home buyers entering the market and the news today will bring more comfort to Kiwis as they take on new mortgages,” she said. 

With many banks preemptively adjusting mortgage rates, borrowers are already seeing the impact. 

“Banks have started to factor in the lowered rates before the announcement today. Both one-two year and three-five year fixed-term rates are looking attractive as an option to the regular short-term view,” Hodgetts said. 

“Floating rates are still popular as borrowers gamble to see if we have reached the lowest rates for 2025.” 

Rate cut supports housing market momentum 

The easing is expected to boost housing activity, particularly for entry-level buyers, as affordability improves.  

Campbell Dunoon (pictured upper right), LJ Hooker’s NZ head of network, welcomed the RBNZ's move as a confidence boost. 

“Lower interest rates will ease borrowing costs giving more confidence to first-home buyers who have started to be active in 2025 and have been closely monitoring the market,” Dunoon said. 

He said the decision could trigger a rise in listings and buyer engagement, “For sellers, this move provides the market uplift many have been waiting for… We expect to see an increase in listings as confidence builds and more vendors return to the market.” 

Kiwibank: More cuts still needed to support the economy 

Kiwibank chief economist Jarrod Kerr (pictured lower left) said the central bank’s cut was a welcome move, but not enough given the downside risks to growth. 

“There’s no doubt that the Kiwi economy needs support,” Kerr said. “The risks to the growth outlook are tilted to the downside… In the current environment, with a future clouded by the tariff trade war, there’s more for the central bank to do to support the recovery.” 

He highlighted RBNZ’s revised OCR track, which now bottoms out at 2.85% in March 2026. 

“So now another 25bps cut to 3% is fully baked into the cake… We’re still of the view that a 2.5% cash rate is what the Kiwi economy needs,” Kerr said. 

Kerr warned of increasing spare capacity and a slower recovery than previously projected. 

“Interest-rate sensitive sectors such as residential construction and retail have yet to gain momentum… The RBNZ now projects 0.7% growth this year, down from 1%,” Kerr said. 

ASB: Tariff risks cloud inflation and growth outlook 

ASB chief economist Nick Tuffley (pictured lower right) noted that RBNZ faces layered uncertainty, particularly from US trade policy impacts. 

“The RBNZ has to overlay highly uncertain trade war impacts on top of an economy that is in the early stages of coming out of recession, with plenty of spare capacity, but set to experience a brief spike in inflation this year,” Tuffley said. 

He agreed with RBNZ’s assumption that tariffs are more likely to cause a demand-side shock, lowering inflation and justifying further easing. 

“The key takeaway from the analyses is where the RBNZ's central projection leans. Right now, it’s leaning more towards team ‘net demand shock’,” Tuffley said. 

However, he cautioned that inflation expectations are rising and will need to be carefully managed. 

Rate cut not the end of easing cycle, say economists 

Westpac chief economist Kelly Eckhold confirmed that RBNZ’s revised OCR projection suggests the easing cycle is not yet over. 

“The RBNZ’s projection for the OCR now bottoms at 2.85% in the March 2026 quarter, compared to 3.1% in the February MPS,” Eckhold said. 

However, a five-one split vote on the Monetary Policy Committee highlighted divisions on the pace of further cuts. 

“One member voted for the OCR to remain unchanged, seeking to consolidate inflation expectations… and allowing more time to judge the impact of US policy uncertainty,” Eckhold said. 

Westpac now believes the next likely move will be in August, not July. 

Inflation tamed but global risks linger 

Despite a slight rise in inflation to 2.5% in Q1, the RBNZ sees it as manageable and within its target band. 

“This latest reduction comes as inflation increased slightly in the March quarter to 2.5%, however, it is still comfortably within the RBNZ’s target band,” Ray White chief economist Nerida Conisbee said. 

However, Conisbee noted external pressures remain. 

“The central bank… faces a complex environment with the government simultaneously reducing spending… and US tariffs affecting New Zealand's second-largest export market,” she said. 

Read the Ray White insights on LinkedIn. Also read the insights from Westpac, Kiwibank, and ASB.