Cash rate

IBISWorld forecasts the cash rate to inch downwards by 1.9 percentage points in 2025-26 to average 2.89% over the year. The cash rate is expected to continue declining over the year, with the Reserve Bank of New Zealand (RBNZ) acknowledging inflation is within the target range of 1-3%. The RBNZ has cut the OCR several times over the year. So far, the RBNZ reduced the OCR by 25 basis points in its April, May and August meetings in 2025 and 50 basis points at its October meeting. Further easing is set for the tail end of 2025-26.

Following the outbreak of COVID-19, the RBNZ reduced the OCR to 0.25% at an emergency meeting in March 2020. This OCR remained unchanged for much of the pandemic as the RBNZ sought to support economic activity amid significant global disruptions to travel, trade, business, and consumer spending. In response to the economic challenges, the RBNZ launched the Funding for Lending Programme in December 2020 to facilitate further lending and support trends towards full employment and stable inflation. Despite sporadic COVID-19 outbreaks and travel limitations, the relative success of the country in containing the virus helped the domestic economy and employment recover sooner than expected. By the September 2020 quarter, economic activity had surpassed pre-pandemic levels, driven by rising household consumption, infrastructure development, and increasing business investment. Reflecting these positive developments, the RBNZ ended the Funding for Lending Programme in July 2021, which was initially set to conclude in December 2022.

As economic conditions continued to improve, the RBNZ raised the OCR for the first time since the emergency cut in October 2021. Several subsequent increases followed as the RBNZ tightened its monetary policy to prevent the economy from overheating. Factors like surging energy prices, global supply chain disruptions, and tight labour market conditions contributed to exceptionally high inflation, with annual rates reaching 7.2% in both September and December 2022, slightly below the record high of 7.3% in June 2022. These inflation rates significantly exceeded the RBNZ's 1-3% target range. For this reason, the RBNZ raised the OCR several times over the three years through 2023-24, with the OCR reaching 5.5% in May 2023. Yet, the RBNZ started easing the cash rate in August 2024 as inflationary pressure began to ease and economic growth remained weak. Overall, IBISWorld forecasts the cash rate to rise at an average annual rate of 0.53 percentage points over the five years through 2025-26.