Green shoots emerge: Spending, confidence rise after OCR cut
New Zealand mortgage markets are digesting last week's widely expected 25‑basis‑point cut from the Reserve Bank (RBNZ) – and a strong signal from economists that the easing cycle may now be over.
RBNZ’s final meeting of 2025 saw the official cash rate (OCR) reduced from 2.5% to 2.25%, a move fully priced in ahead of time. Yet wholesale interest rates and the New Zealand dollar rose after the decision and subsequent data releases, as the tone from the central bank and the numbers that followed pointed to a more confident, “neutral” stance on the outlook.
Westpac: Split vote and hawkish tone surprise markets
Westpac senior economist Darren Gibbs (pictured left) said there were several hawkish surprises embedded in what was, on the surface, a straightforward 25bp cut.
“As was widely expected and fully priced by markets, the RBNZ delivered a 25bp reduction in the OCR to 2.25%,” Gibbs said. “However, both wholesale interest rates and the NZ dollar rose following the meeting and especially following the post-meeting press conference.”
The decision itself came on a 5–1 split, with one Monetary Policy Committee member voting to hold the OCR at 2.5% – a dissent that ran against market chatter about the possibility of a larger 50bp cut. “If anything, a dissent in favour of a 50bps cut had seemed more likely,” Gibbs said.
The new OCR track showed a terminal rate of 2.2% in Q2 next year – only fractionally below the current 2.25% OCR, and slightly higher than markets had expected.
According to Gibbs, outgoing governor Christian Hawkesby “characterised the RBNZ’s new forecast as being consistent with the likelihood that the OCR would remain on hold at current levels through 2026.” Hawkesby also said that if there were any near‑term move, it would “more likely” be down than up, consistent with the terminal OCR sitting just below the current level – but in later comments he indicated further cuts now face a “high hurdle”.
RBNZ’s projections imply the OCR is likely to stay at current levels until around mid‑2027, before gradually climbing towards 3% – RBNZ’s estimate of the long‑run neutral rate – by the end of 2028.
ASB: RBNZ “likely done for now”
ASB chief economist Nick Tuffley (pictured center) said the central bank sounded more cautious than many had anticipated.
He highlighted that RBNZ’s OCR forecasts showed the rate reaching a low of 2.2%.
“The overall risks to inflation were seen as more balanced, and the statement was a bit more upbeat on the outlook. For inflation, it was a slow grind down to 2%,” Tuffley said.
“Our take remains that the RBNZ is likely done for now and will only cut interest rates further if the recovery underwhelms its expectations and inflation is at risk of spending time below the 2% mid-point that the RBNZ is aiming for.”
Kiwibank: 2.25% “marking the bottom” of the easing cycle
Kiwibank chief economist Jarrod Kerr (pictured right) and his team also see last week’s cut as potentially the last of the cycle.
“From the tone, the vote, and the refreshed OCR track, everything from last week’s decision was reflective of a central bank potentially at the end of its cutting cycle," Kerr said.
He pointed to Hawkesby’s explicit comment that there is “a high hurdle” for any further easing, and said Kiwibank’s baseline is now that the OCR has reached its low.
“It all adds to the case of 2.25% marking the bottom of the RBNZ’s easing cycle. We think it is. And that’s good news,” Kerr said, while noting they still see risks tilted towards more cuts rather than hikes in the very near term if the recovery stumbles.
Green shoots: retail, business and housing indicators strengthen
Economists say RBNZ’s more neutral tone has been reinforced by stronger data released in the days after the decision.
Gibbs highlighted a sharp upside surprise in September quarter retail volumes, which grew 1.9% quarter‑on‑quarter, compared with expectations of around 0.5%.
“The upside surprise – we and the market had expected growth of around 0.5%q/q – was due to very strong growth in spending on motor vehicles and household appliances,” he said. “We view this as a positive sign that the easing of monetary conditions is now transmitting through to the household sector (as of September, the effective mortgage rate paid by households was around 100bps below last year’s peak).”
The Westpac economist cautioned, however, that much of the surprise came in import‑intensive categories, rather than domestically produced goods and services.
The latest ANZ Business Outlook survey also showed a broad‑based lift in sentiment. Gibbs noted that “the headline business confidence index improved further to a fresh 11-year high, and firms also expressed greater positivity about the outlook for their own activity,” with reported activity over the past year rising to its highest reading since August 2021.
Tuffley’s team at ASB pointed to similar “green shoots” in their own work, including housing confidence.
“We have just released our latest ASB Housing Confidence Survey for the three months to October. Sentiment about it being a good time to buy a house reached the most positive level in 15 years,” he said.
The ASB economist added that affordability has improved “considerably” from the post‑COVID frenzy, with house prices down from their peaks, incomes higher, and mortgage and test rates “down substantially”.
Consumer confidence has also ticked higher, with ANZ’s measure rising 6.5% in November to its best reading since June, although households remain cautious about current conditions.
Jobs picture: Signs of stabilisation, but uneven across sectors
On the labour side, Gibbs said the Monthly Employment Indicator pointed to no change in filled jobs in October, with the usual small downward revisions to prior months.
“Even so, we still view this report as pointing to some stabilisation in the jobs market in recent months after a renewed downturn through the earlier part of this year,” he said.
The strongest employment trends remain in public‑sector‑heavy areas such as public administration, safety and healthcare, with some signs of an uptick in tourism‑linked sectors like transport and recreational services. Construction and professional services continue to see declines, while regionally there are tentative signs of a lift in jobs in Auckland and ongoing weakness in Wellington.
At the same time, Gibbs noted that MBIE’s comprehensive job advertising measure still signals weak labour demand overall, suggesting it may take time before any strengthening in activity translates into a lower unemployment rate.
For more insights, read the economic commentaries from Westpac, ASB, and Kiwibank.
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