The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) voted to cut the official cash rate (OCR) by 25 basis points to 3% at its meeting this morning, Wednesday, August 20, as expected. This resumes the series of rate cuts that paused at the July meeting after six consecutive rate cuts.
The RBNZ statement indicated that annual consumer price inflation remains within the MPC’s target range of 1% to 3%. Recent increases in food and commodity prices have contributed to inflationary pressures over the medium term. However, headline inflation is expected to return to around the 2% midpoint by mid-2026. If medium-term inflation pressures continue to subside as expected, there is scope for a further interest rate cut. Inflation reached 2.7% in the second quarter of this year and is expected to reach 3% in the third quarter, reflecting increases in administered prices and the prices of food, goods, and services. Economic growth is expected to gradually recover, with the New Zealand economy expected to contract in the second quarter and possibly resume growth in the third quarter.
In its quarterly forecast, the Bank raised its inflation forecast to 2.3% in the first quarter of next year, compared to 1.9% previously, and to 2.2% in the second and third quarters, compared to 1.9% and 2.1% in the May forecasts. The Bank lowered its growth forecast to 0.7% in the first quarter of next year, compared to 0.8% in the May forecast, and to 0.6% in the second and third quarters, down from 0.7%. The bank left the door open to further interest rate cuts, adding that if inflationary pressures continue to subside over the medium term as expected, the committee will cut interest rates further. The bank forecasts that interest rates could reach 2.7% by the end of the year and 2.5% in the first quarter of this year, compared to 2.9% in its May forecast.