Banks expect 25bp cut but say RBNZ may need to go further in 2026
The Reserve Bank is widely expected to cut the official cash rate by 25 basis points to 2.25% next week, but economists say the focus will be on whether the door remains open for further cuts in 2026.
The November 26 Monetary Policy Statement will be the final decision for outgoing Governor Christian Hawkesby, who hands over to Dr Anna Breman on December 1.
ASB chief economist Nick Tuffley says the bank expects the RBNZ to cut by 25 basis points but signal it will cut further if needed.
"Our base case is that November will bring the last OCR cut, but the risk remains for further easing in 2026," Tuffley says.
"Much depends on the green shoots prior to the February MPS decision and the confidence they give that the economic recovery will absorb spare capacity fast enough. It's down to the data now."
ASB says the statement's forecasts and commentary will leave the door wide open for further easing if needed. This will keep wholesale interest rates in check, given financial markets are pricing in a 50:50 chance the RBNZ will cut the OCR to 2% over time.
Kiwibank takes a similar view, with chief economist Jarrod Kerr saying a 25 basis point cut is perfectly priced by markets and requires little justification.
"The Kiwi economy still needs more support," Kerr says. "Yes, the Reserve Bank has delivered a significant amount of easing. 300bps to be exact. But for the majority of this year, the cash rate remained at restrictive levels."
Kerr says it was only after the cut to 2.5% in October that policy moved beyond neutral ground and into more stimulatory territory. He argues the move came too little too late, and the delay has cost the economy.
"The recovery we anticipated for this year stalled, activity lost momentum and Kiwi households and businesses have suffered further. All of which has put the Reserve Bank in a position of needing to do even more.”
Could RBNZ go further?
Kiwibank raises the possibility of another 50-basis-point move, though doesn't formally forecast it. Kerr says a 50-basis-point move to 2% would clear the decks for incoming Governor Breman.
"It's certainly within the realms of possibility, and should be on the table for discussion by the RBNZ's MPC next week," Kerr says.
"Why not get us there, cut with confidence, to fuel confidence. It's just the sort of shock treatment the economy needs."
ASB says if the RBNZ's deliberations give consideration to a 50-basis-point cut at this meeting, it would suggest a reasonable chance of the OCR heading lower in 2026, particularly if data disappoints.
Both banks expect the RBNZ to lower its OCR track. ASB says the track must be lowered simply because of October's 50-basis-point cut, which took the cash rate below the previous track's trough of 2.55%.
Kiwibank points to the RBNZ's forward guidance at the last meeting: "The Committee remains open to further reductions in the OCR."
"The key word here being 'reductions' – plural," Kerr (pictured right) says.
Kiwibank expects the terminal rate to drop to about 2.15%, implying a modest easing bias. Anything below that would signal firm intention to cut below 2.25%.
ASB expects the RBNZ to project the OCR to bottom out below 2.25%, around 2.10-2.20, near current market pricing. The published rate track is expected to drift higher from late 2026 or early 2027.
Market impact
ASB says the lack of a clear easing bias would risk causing a rebound in wholesale interest rates that would undermine the effectiveness of monetary policy over the next three months when a considerable number of people will be refixing their mortgages.
Kiwibank says a dovish tone from the RBNZ could send the two-year swap rate back to its October lows. The rate has recently climbed to above 2.6%, unwinding the post-October fall.
Financing Futures director and mortgage adviser Connor Ward says overall sentiment around rates is cautiously optimistic.
"People are enjoying the reduction in rates but still wary given how quickly they escalated last time," Ward says.
"Most clients seem to still be leaning toward shorter term rates given that there has been little movement to the longer rates and shorter term rates still seem to be dropping."
