Partner Center

Market expectations were for the RBNZ to lower rates by 0.25% this week, but the central bank surprised with an even larger 0.50% reduction. This brought the OCR down from 3.00% to 2.50% – its lowest level in three years.

Key Takeaways from the RBNZ Decision 

  • OCR cut by 50bp to 2.5%, exceeding market expectations of 25bp
  • Inflation projected to return to 2% target by the first half of 2026
  • Weak Q2 GDP contracted 1.1% year-on-year, worse than the 0.9% decline forecast
  • Committee remains open to further cuts if inflation pressures continue to ease
  • Domestic inflationary pressures moderating, giving policymakers confidence to act decisively
  • Trading partner growth improving for 2025, particularly China, Taiwan, and other Asian economies, though expected to slow in 2026

Link to official RBNZ Statement (October 2025)

In its official statement, RBNZ policymakers pointed to weak economic activity through the middle of 2025 as justification for the larger-than-expected reduction, noting that slow growth in disposable incomes and house prices continue to weigh heavily on consumption.

Second quarter GDP data underscored these concerns, contracting more sharply than economists projected. The RBNZ attributed this weakness partly to domestic supply constraints in some industries and the lingering impact of global economic policy uncertainty.

Despite these headwinds, the bank emphasized that lower interest rates are beginning to support a recovery in household consumption. By a majority of five votes to one, the committee ultimately agreed to the 50bp reduction.

Also, the committee noted that while headline inflation may temporarily reach 3% in the September quarter due to large increases in administered prices and food costs, underlying domestic inflation continues to decline.

Market Reactions

New Zealand Dollar vs. Major Currencies: 5-min

NZD Plummets After RBNZ Announced a Surprise 0.50% Rate Cut in October

Overlay of NZD vs. Major Currencies Chart by TradingView

The surprise 50bp cut triggered an immediate selloff in the New Zealand dollar, with NZD declining sharply against all major currencies in the minutes following the announcement.

NZD/USD led losses, dropping approximately 0.85% within the first hour of trading. NZD/CAD fell 0.81% while NZD/GBP and NZD/AUD each declined roughly 0.69%. Even against slightly weaker currencies, the Kiwi struggled, as EUR/NZD rose 0.63% while NZD/CHF fell 0.59%.