RBNZ cuts rates to lowest level since 2022 but signals the easing cycle is nearing its end

New Zealand’s central bank has delivered another interest rate cut, easing the Official Cash Rate (OCR) by 25 basis points to 2.25% — the lowest it has been in more than three years. But despite the move, the Reserve Bank of New Zealand (RBNZ) made it clear that the window for additional cuts is narrowing as early signs of economic recovery emerge.

In its final policy statement of the year, the RBNZ said the board had debated whether to pause or proceed with one more reduction, reflecting a shift in tone after months of aggressive easing. The central bank has cut rates by a total of 325 basis points since August 2024 in an effort to revive an economy that has slipped into recession multiple times over the past two years.

Governor Christian Hawkesby, who chairs the committee for the last time before Anna Breman takes over in December, noted that the path ahead will depend heavily on how inflation trends evolve. The bank now expects the OCR to sit at 2.20% in early 2026 before edging up again by late 2027, a trajectory that suggests policymakers are becoming more cautious.

Markets reacted swiftly. The New Zealand dollar climbed about 1% following the announcement, while two-year swap rates rose as traders sharply reduced expectations of further easing. Several analysts said the central bank’s message was more hawkish than many had anticipated, especially after October’s unexpected 50-basis-point cut.

Although activity remained weak through mid-2025, lower borrowing costs are beginning to nudge household spending higher. Still, the RBNZ highlighted a mix of risks, from soft global demand to lingering inflation pressures, that make the outlook finely balanced. Inflation rose to 3% in the third quarter but is expected to fall back toward 2% by mid-2026 as spare capacity grows.

For now, the bank’s latest move brings the easing cycle close to its endpoint, marking a transition to a more watchful phase as the economy steadies.