Reserve Bank Cuts OCR To 4.75 Percent
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- The Reserve Bank has lowered the OCR by 0.5%, citing subdued economic activity.
- Retail banks, including Kiwibank, ANZ, and ASB, promptly reduced their variable rates.
- Finance Minister Nicola Willis welcomed the cut, highlighting potential relief for households and businesses.
The Reserve Bank of New Zealand has announced a 0.5% cut to the Official Cash Rate (OCR), bringing it down to 4.75%. This is the lowest level seen since February 2023. The decision was made to support the economy as inflation returns to the 1-3% target range.
Retail banks, including ASB, ANZ, and BNZ, have already followed suit, cutting their variable rates by 50 basis points. Kiwibank had pre-emptively reduced its rates a day earlier. The rate cuts are expected to ease pressure on borrowers and support economic recovery.
Finance Minister Nicola Willis expressed optimism, stating, “Lower interest rates will provide much-needed relief for households and businesses, allowing families to keep more of their hard-earned money and increasing the opportunities for businesses to invest and innovate.” She added that the government’s efforts to stabilise the economy are starting to show positive results.
The Reserve Bank's Monetary Policy Committee justified its decision, noting, “Economic activity in New Zealand is subdued, in part due to restrictive monetary policy. Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity.”
While inflation has been brought under control, economic growth remains sluggish. The latest data shows New Zealand’s economy contracted by 0.2% in the June quarter. Unemployment is at 4.6%, and 85,600 citizens have left the country in the past year. The Reserve Bank said the economy now has “excess capacity”, encouraging prices and wages to adjust.
The bank’s outlook remains cautious. Global economic growth is below trend, with significant headwinds from geopolitical tensions. Although exporters have benefited from improved prices, the United States and China are both expected to see slowing growth.
Retail banks had been reducing fixed home loan rates following an earlier OCR cut of 0.25% in August. Economists believe that further rate cuts may be on the horizon if economic conditions do not improve.