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Reserve Bank's 'shock treatment': OCR slashed by 0.5%
OCR updates and insights from Chief Economist Kelvin Davidson.
By Kelvin Davidson 8 October 2025The Reserve Bank has made a decisive move today, with its Monetary Policy Committee cutting the Official Cash Rate (OCR) by a significant 0.5%, bringing it down to 2.5%. While a cut was widely expected, the size of the drop has sent a clear signal about the Bank's intentions for the economy.
To understand what this "front-loaded" easing means for the economy and the property market, we turned to our expert, Kelvin Davidson, Chief Property Economist at Cotality.
Why the aggressive cut?
According to Kelvin, the Reserve Bank's bold move stems from persistent concerns about the economy's sluggish performance. He explains that "economic weakness and spare capacity remain the key concerns," which creates the risk that inflation could fall below its 1-3% target band.
Faced with this possibility, the Committee opted for decisive action. "The bigger, front-loaded 0.5% cut was probably seen as the least-regrets option, rather than a more ‘wait and see approach’ of only cutting by 0.25%," Kelvin notes. He adds that while both options were discussed, the larger cut won the consensus, and another cut could even be on the cards for November.
Outlook for 2026: a return to growth?
Looking ahead, Kelvin frames today's decision as potential "shock treatment" required to kickstart the economy. He anticipates that the "green shoots we’ve been seeing should emerge fully in 2026."
This economic turnaround is expected to flow through to the property market. "As unemployment starts to drop again, it seems likely we’ll see house prices rise next year," Kelvin predicts.
However, he offers a crucial note of caution for those expecting another boom. The presence of debt-to-income (DTI) ratio caps will play a moderating role. As Kelvin concludes, these rules are "one reason to be cautious about the size and speed of medium-term growth in property values."
Immediate impact on the housing market
While a lower OCR typically fuels the property market, Kelvin advises against expecting a sudden surge in activity. He points out that "the immediate, direct housing market effects from today’s decision aren’t likely to be massive."
The main reason for this is that retail banks have been proactive. "The banks had already been cutting their mortgage rates in advance, particularly for one-year fixed loans," he says.
Furthermore, there's a significant handbrake on the other side of the equation. As Kelvin highlights, "the subdued labour market is the key restraint... at present – and it will be slower to start improving; maybe not until next year."
Past OCR Updates
Catch up on previous OCR updates and commentary:
OCR down to 3% — and the cuts don’t appear to be over yet, August 2025
Reserve Bank cuts OCR to 3.5%, April 2025
Reserve Bank cuts OCR to 3.75%, February 2025
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