The Reserve Bank of New Zealand’s latest interest rate decision on November 26, 2025, lowered the OCR from 2.50% to 2.25%, in line with market expectations. This move continues the easing cycle initiated in August 2024 when rates peaked at 5.25%. The current rate is the lowest since early 2023, reflecting a shift from aggressive tightening to a more accommodative stance amid slowing inflation and growth.

Drivers this month

• Inflation eased to 3.40% YoY in October, down from 4.10% in August.
• GDP growth slowed to 1.10% QoQ in Q3 2025, below the 1.50% average of the past year.
• Unemployment steady at 3.80%, near historic lows but showing slight upward pressure.

Policy pulse

The OCR cut aligns with the RBNZ’s inflation target range of 1–3%, signaling a cautious pivot. The central bank emphasized the need to support growth while monitoring inflation expectations and wage pressures.

Market lens

Immediate reaction: The NZD/USD fell 0.30% within the first hour post-announcement, while 2-year government bond yields declined by 10 basis points, reflecting eased monetary policy expectations.

Core macroeconomic indicators underpin the RBNZ’s decision. Inflation has moderated from a peak of 7.20% YoY in early 2024 to 3.40% in October 2025, driven by lower energy prices and subdued shelter cost increases. However, inflation remains above the 2% midpoint target, sustaining some policy caution.

Inflation and growth trends

• Consumer Price Index (CPI) YoY: 3.40% (Oct 2025), down from 4.10% (Aug 2025), and well below 5.80% average in 2024.
• GDP growth QoQ: 1.10% (Q3 2025), compared to 1.50% average over the past 12 months and 2.00% in Q3 2024.
• Labour market: Unemployment steady at 3.80%, slightly above 3.50% in mid-2024 but still tight.

Fiscal policy & government budget

Government fiscal policy remains moderately expansionary, with a 2025/26 budget deficit forecast of 2.30% of GDP, slightly wider than the 1.80% deficit in 2024/25. Increased infrastructure spending supports growth but adds inflationary pressure risks.

External shocks & geopolitical risks

Global trade tensions, particularly between China and the US, continue to weigh on export demand. Additionally, geopolitical uncertainties in the Asia-Pacific region add volatility to commodity prices and investor sentiment.

Drivers this month

• Inflation deceleration: CPI dropped 0.70 percentage points since August 2025.
• GDP growth slowdown: Q3 2025 growth at 1.10% vs. 1.50% average.
• Stable labour market with slight softening.

Policy pulse

The RBNZ’s rate cut aligns with a gradual easing approach, balancing inflation risks with growth support. The bank’s forward guidance signals readiness to pause if inflation stabilizes near target.

Market lens

Immediate reaction: NZD/USD depreciated 0.30%, 2-year bond yields fell 10 bps, and breakeven inflation rates edged lower, reflecting market confidence in the easing cycle continuation.

Looking ahead, the RBNZ faces a complex environment balancing inflation control and growth support. The central bank’s cautious easing suggests a data-dependent approach over the next 6–12 months.

Bullish scenario (25% probability)

• Inflation falls rapidly below 2%, allowing for a pause or reversal in rate cuts.
• Stronger-than-expected GDP growth driven by fiscal stimulus and export recovery.
• NZD strengthens on improved risk sentiment.

Base scenario (55% probability)

• Inflation gradually approaches 2.50%, prompting a steady OCR at 2.25% through mid-2026.
• Moderate GDP growth around 1.00% QoQ, with stable labour market conditions.
• NZD remains range-bound, with mild volatility from external shocks.

Bearish scenario (20% probability)

• Inflation remains sticky above 3%, forcing a pause or hike in rates.
• Global trade disruptions weaken exports, slowing GDP growth below 0.50% QoQ.
• NZD weakens amid risk-off sentiment and capital outflows.

The RBNZ’s November 2025 interest rate cut to 2.25% reflects a pragmatic shift toward supporting growth amid easing inflation pressures. While the central bank remains vigilant on inflation risks, the current policy stance balances multiple headwinds, including fiscal expansion, external uncertainties, and a tight labour market. Market reactions underscore confidence in a gradual easing path, though volatility may persist given geopolitical and trade risks.

Investors and policymakers should monitor inflation trends, wage growth, and global developments closely. The RBNZ’s data-driven approach suggests flexibility, with the potential for either further easing or stabilization depending on evolving economic conditions.

Red links to tradable symbols relevant to this analysis:

• NZ50 – New Zealand’s benchmark stock index, sensitive to domestic monetary policy shifts.
• NZDUSD – The New Zealand dollar versus US dollar, directly impacted by OCR changes.
• AUDNZD – Reflects relative monetary policy and economic conditions between Australia and New Zealand.
• BTCUSD – Bitcoin’s price often reacts to risk sentiment shifts influenced by central bank policies.
• NZX – The New Zealand Exchange, reflecting broader market sentiment and liquidity conditions.