New Zealand: RBNZ cuts OCR by 25 bps in Aug and turns more dovish – UOB Group

Earlier today (20 Aug), the Reserve Bank of New Zealand (RBNZ) decided to decrease the Official Cash Rate (OCR) by 25 bps from 3.25% to 3.00%, the lowest level in three years, UOB Group's economist Lee Sue Ann reports.

RBNZ to take rates further below neutral

"The Reserve Bank of New Zealand (RBNZ) cut its official cash rate (OCR) by 25 bps to 3.00% earlier today (20 Aug), following a hold in Jul. RBNZ Governor Christian Hawkesby said the decision was aimed at supporting growth after the economy contracted in the Jun quarter, with household and business spending constrained by weaker employment, falling house prices, and higher costs for essentials."

"The latest decision marks a notable shift towards a more dovish stance from earlier meetings. The Monetary Policy Committee voted 4-2 for the quarter-point cut, with a minority favouring a larger 50 bps reduction. The RBNZ projects the cash rate will fall to 2.71% by the final quarter of 2025 and ease further to average 2.55% in early 2026."

"Given the weakness in the economy, and the RBNZ’s shift to a more dovish stance, we now see the RBNZ taking rates further below neutral, expecting two more 25 bps rate cuts in the OCR to 2.50% (previously we forecast 3.00% would be the low for the OCR)."