Market reacts as RBNZ slashes rates by 50bp
The financial and housing sectors have welcomed the Reserve Bank’s 50-basis-point reduction to the official cash rate (OCR), calling it a much-needed move to revive the economy and restore borrower confidence.
Industry leaders back RBNZ’s rate cut as confidence returns
Finsure NZ country manager Jenny Campbell (pictured upper left) said RBNZ’s decision to lower the OCR to 2.5% was justified given the weak second-quarter GDP result and rising unemployment.
“Reducing the cash rate by 50 bps was sorely needed, given the current state of the economy,” Campbell said. “The economy needed a strong shot in the arm in order to regain confidence and spark activity sooner, rather than later.”
She added that advisers should move quickly to help clients secure better rates.
“As lenders react to the drop, advisers need to capitalise on this opportunity to get their clients on a better deal, particularly with Christmas just around the corner.”
LJ Hooker Head of Research Mathew Tiller said the larger-than-expected move would provide a psychological boost for the housing market.
“A half-percent cut is a clear signal that the Reserve Bank wants to unlock momentum in the economy,” he said. “It provides meaningful relief for borrowers and is likely to reignite property market activity heading into summer.”
Tiller said the fundamentals are shifting in favour of renewed confidence.
“Low rates, high stock, and early signs of value growth are setting the stage for more active months ahead,” he said. “For those ready to take the next step, conditions haven’t looked this good in years.”
Finance and Mortgage Advisers Association of New Zealand (FAMNZ) managing director Peter White (pictured upper right) said the move gives borrowers more options and advisers more opportunities to engage.
“Consumers have been waiting for this, and every rate cut improves affordability for mortgage holders,” White said. “Mortgage advisers have a great opportunity to differentiate themselves by ensuring they provide the best advice and put customers’ interests first.”
He added that brokers should encourage clients to maintain repayment levels where possible.
“Those who can afford to keep up their current level of repayments should do so — it will protect them and give them a buffer when rates rise again,” White said.
Economists from the major banks also backed the move, describing it as prudent, data-driven, and necessary to lift growth.
Westpac: “Further easing likely in November”
Kelly Eckhold (pictured lower left), Westpac chief economist, said RBNZ’s decision reflected growing concerns about spare capacity and subdued growth.
“The RBNZ emphasised signs of significant excess capacity in the economy that give them comfort that medium-term inflation will be well under control,” Eckhold said.
She noted that the bank’s forward guidance remains dovish, with another reduction likely.
“The committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2% target mid-point in the medium term,” Eckhold said.
The Westpac economist said the 50bp move was supported by consensus, indicating a unified shift in tone since August.
“The members who voted for a 25bp cut in August shifted to the 50bp camp this time,” Eckhold said.
Westpac now expects a 25bp rate cut in November, consistent with its previous forecast, while markets have priced in about 27bps of easing.
ASB: A prudent decision with room to move
Nick Tuffley (pictured lower right), ASB chief economist, said the 50bp cut was “a clear-cut decision, and the right one.”
“There is little risk being taken in getting the OCR down to 2.5% now,” Tuffley said. “The amount of spare capacity in the economy remains significant and potentially more persistent.”
He said the case for a larger cut rested on ongoing weakness in domestic activity, with inflationary pressures largely driven by a few cost-heavy sectors.
“Price increases from local authority rates, insurance, energy and tobacco… have directly accounted for about 30% of the 2.7% annual increase in CPI prices in the June 2025 year,” Tuffley said.
The ASB economist added that RBNZ is rightly focused on medium-term inflation, not short-term spikes.
“The bank acknowledges that inflation from selected cost pockets had boosted the figures… there is a strong case for the RBNZ looking through the near-term inflation spike and focusing on the medium-term determinants,” Tuffley said.
ASB expects CPI inflation to approach 2% by early 2026 as tradable pressures ease and spare capacity moderates.
Kiwibank: “Boom! The RBNZ delivered what was needed”
Kiwibank chief economist Jarrod Kerr said the RBNZ had “delivered what the Kiwi economy desperately needs.”
“Boom! The RBNZ delivered what was needed. The cash rate was cut by 50bps to 2.5%,” Kerr said. “The stalled recovery demanded a bold move.”
He said the cut takes policy from neutral to stimulatory, helping to inject confidence into the economy.
“At 2.5%, monetary policy has gone from neutral to stimulatory settings. This sets up the economy for next year,” Kerr said.
The Kiwibank economist expects a further move to 2.25% in November and said the central bank has kept the door open for more easing.
“The committee remains open to further reductions in the cash rate,” Eckhold said. “The key word here – ‘reductions’. Forgive us for getting grammatical, but that little ‘s’ makes all the difference.”
He added that markets reacted exactly as expected.
“A 50bp move flushed out those calling for 25bps and caused a decisive move lower in wholesale rates and the currency. Both moves will help boost the re-recovery of the Kiwi economy.”
Market impact and broker outlook
Following the announcement, the NZD fell about 1%, and short-end swap rates dropped 7–12bps, reinforcing expectations of further easing in November.
Mortgage advisers now face an active few months, with increased client refinancing and a new wave of buyer demand likely to flow through as fixed rates adjust.
In summary:
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The RBNZ has moved decisively into stimulatory territory.
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Banks expect at least one more cut before year-end.
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Brokers can expect renewed borrower activity, particularly among first-home buyers and upgraders.
As Tiller summed up: “This is the window many New Zealanders have been waiting for. If you can manage your repayments now, you’ll be in stronger shape in twelve months as the market gains warmth and property values begin to lift.”
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