Construction and inflation trends could shape the next OCR decision
The Reserve Bank of New Zealand is expected to reduce the Official Cash Rate (OCR) by 25 basis points to 2.25% when it releases its Monetary Policy Statement on November 26, according to Westpac New Zealand Economics.
Chief economist Kelly Eckhold said the central bank would likely revise its projected OCR track downward by approximately 30-35 basis points, with the low point expected to reach around 2.2% in the first half of 2026.
“The implication is a mild and data-dependent easing bias for next year,” Eckhold wrote in the November 19 analysis.
The assessment comes as the RBNZ weighs key factors, including excess capacity in the economy, short-term growth prospects, inflation trends, and whether inflation expectations remain anchored.
A formal vote at the meeting remains possible if Monetary Policy Committee members hold significantly different views on policy strategy, with the choice between a 25- or 50-basis-point reduction.
Eckhold noted potential evolution in how the RBNZ communicates individual committee members’ perspectives, similar to recent changes at the Bank of England. This could reveal a wider range of views on the 2026 policy path compared with the official OCR projection.
A mixed view
The analysis indicated that Governor-elect Breman would not participate in policy discussions.
Since the August monetary policy statement, economic indicators have presented a mixed picture. Retail spending rose 0.2% in October, driven primarily by grocery purchases, where prices have increased, while discretionary spending on items such as furnishings and hospitality remained soft despite lower interest rates.
The construction sector showed signs of stabilisation, with concrete volumes up 2.3% in the September quarter and residential dwelling consents trending higher. However, consumer sentiment remained subdued amid economic uncertainty and cost-of-living concerns.
The labour market stayed weak through June, with employment flat and unemployment rising from 5.2% to 5.3%. Wage growth remained muted as firms maintained caution about hiring.
Inflation reached 3% annually in the September quarter, up from 2.7%, though the increase was concentrated in less cyclical areas. The New Zealand dollar trade-weighted index sat approximately 3% below the RBNZ’s August assumptions.
Eckhold argued that a 2.25% OCR was well justified, cautioning against cutting rates below 2% given risks demonstrated during 2019 and the COVID-19 period, when extremely low rates contributed to asset price inflation.
