OCR predictions for 2025 and 2026

The above predictions are the latest from the Reserve Bank from their Monetary Policy decision back in August 2025. Since then the economy has performed worse than expected, so most economists are expecting the OCR to drop a bit more than the above predictions. 

The general concensus is that we may get one more OCR cut in the November 28 decision, taking the OCR down to 2.25%. 

The Reserve Bank indicated that they're open to cutting the OCR lower than 2.5% in their October MPS, so we may see a 2.25% or even 2% OCR by early 2026. These cuts are likely to come in the February and April OCR statements.

In the words of the Reserve Bank:

"The Committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2 percent target mid-point in the medium term."

Following those imminent cuts, it's likely the OCR will either plateau or gradually increase through mid-late 2026. 

Kiwibank has been saying for quite some time that faster OCR reduction was neccesary and in October the Reserve Bank finally played ball. They say further cuts to 2.25% are likely, and 2.00% is even possible:

"Financial markets have caught on, and started pricing in better odds of a move even below 2.25%. As we’ve previously pointed out, we think there’s about a 50/50 chance of a further move to 2% in February. It will depend on how the data and recovery play out."

Economists at New Zealand’s largest bank believe the OCR will be cut to 2.25% in November, with that marking the end of the easing cycle. They're alone in predicting that another 0.5% cut is possible if the data continues to dissapoint, but say it could go the other way too:

"it’s entirely possible that activity data will start to surprise to the upside from here – the bar for that is low."

In their October  Market Outlook paper, BNZ’s economists said they expect the OCR to settle around a low point 0f 2.25% in 2025, but it could go lower in 2026 depending on how the economy performs:

"The easing cycle feels mature. However, even with some downside protection built in by the RBNZ, we must keep an open mind to how low the cash rate may ultimately need to go."

"If domestic activity were to disappoint on the downside and keep the output gap wide or wider for longer, it would increase the chance the cash rate pushes lower than currently anticipated."

Westpac believe that the OCR will cut to 2.00% or 2.25% in November, before plateauing for the foreseeable future. They also make an interesting point, that many households haven't felt the full benefits of the cut yet:

"Of the total 325-350 bp of cuts this cycle we think about 60% of those have passed into household budgets. So there is still a bit more to come (perhaps 80-90 bp in effective mortgage rate terms)."

ASB's OCR forecast is conservative - they expect just one more cut in November, explaining that any movement from there will depend entirely on the data:

"The more muted the recovery looks, the more chance there is of the RBNZ cutting further. The round of local household-focused data out this week will be the next glimpse at that recovery"

Many of the economists at major banks and the Reserve Bank differ slightly on how low the OCR will go and when the cutting will stop.

• Most agree there will be a 0.25 basis point cut in November. Some say this will be a 0.50 basis point cut.

• Following that many economists agree that there will be no more cuts in 2026. However, many explain that this depends entirely on how the economy performs, and if things are going worse than expected the OCR could go below 2.0%. 

In summary, forecasters expect the OCR to cut once more in 2025, before settling somewhere between 1.75% and 2.25%. Where it ends up in this range will depend on the data. 

The OCR has a little room left for more cuts, but according to most predictions - not much. This should flow through to lower interest rates by late 2025, early 2026, but the decreases won't be equal to the OCR cuts.

In fact, most forecasts say that longer term interest rates (2, 3 and 5 years) may not decrease much further (or at all) even as the OCR falls. They may even increase. Six month, one year and floating rates should decrease, but not by an equal amount to the OCR. ANZ provided a word of general advice in their October Property Focus, saying that now may be the time to consider a long term fix:

"While the reductions seen align with our earlier sense that borrowers had a little more time on their side, and will be welcome news for homeowners, the obvious question then becomes; is now the time to lock in for longer?"

"Our mortgage rate projections (which are based on our wholesale interest rate forecasts) point to further moderate falls, and with rises unlikely, borrowers likely have a little more time – months, not quarters – before needing to make a decision. However, we would warn that the window could close rapidly if economic data starts to improve. We thus think it makes sense to make a plan to extend duration over coming months, and to consider spreading risk over a number of terms."

The 2-year term is of obvious value given how low it is compared to other terms, but 3 years may also be worth considering, given that we expect the OCR to start rising from early 2027."