OCR down to 3% — and the cuts don’t appear to be over yet

The Reserve Bank’s Monetary Policy Committee went ahead with a 0.25% official cash rate (OCR) cut today, as widely expected. This decision was pretty clearly signalled at the last meeting in early July, and the economic (weak) and inflation (rising but not critically) figures have evolved broadly as expected in the meantime.

The Committee also discussed a rate hold as well as a 0.5% cut, with the vote ending up 4-2 in favour of the 0.25% drop. This menu of options has a ‘downwards bias’ and pretty clearly suggests that they envisage further rate falls yet.

Indeed, the forecasts that came alongside the Monetary Policy Statement (MPS) showed GDP may not have bottomed out yet (possible -0.3% drop in Q2) and that the unemployment rate could still rise a little further. Inflation could go a bit higher, due to the tradeable/imported component, but spare capacity in the economy should mean this doesn’t last.

It seems fair to conclude from these projections that another one or even two OCR cuts lie ahead, with the first potentially delivered at the next MPS on 26th November. That will be the last meeting for the year and could be an opportunity to support households further over the holiday period, given that the first decision for 2026 doesn’t occur until late February. Note that the Reserve Bank’s own forecast track for the OCR has it reaching a trough of somewhere close to 2.5% by the middle of next year.

The housing market effects from today’s decision are likely to be small. If anything, the possibility of more falls in mortgage rates than previous thought could lift activity and house prices a bit. But those rate changes may be fairly minor. And in the meantime, as the RBNZ has indicated, the economic and labour market outlook is still disappointing – which will tend to weigh on housing, as it’s already doing.

Those concerns about job security might mean that many existing borrowers who are rolling off higher fixes from the past and down onto the new prevailing mortgage rates might choose to save their extra cash or reduce the term of their loan (by keeping repayments the same) rather than spend it in the economy or property market. All in all, the rest of 2025 for NZ’s housing market may be just as subdued as the first 7-8 months of the year.