Central Bank decides to decrease rates in November

Latest bank decision: At its meeting on 27 November, the Central Bank agreed to reduce the Official Cash Rate (OCR) by 50 basis points to 4.25%, taking cuts this year to 125 basis points.

Monetary policy drivers: The key domestic factors driving the Central Bank's decision were subdued economic activity and inflation near the midpoint of the 1 to 3 percent target band.

More cuts on the cards: The Central Bank indicated that if economic conditions continue to evolve as projected, it expects to be able to lower the OCR further early next year. This is in line with our panelists, who see over 100 basis points more cuts next year in order to shore up the economy against a backdrop of mild price pressures.

Panelist insight: Goldman Sachs analysts said: “We are more confident in our forecast 50bp OCR cut at February’s meeting. Further ahead, we expect the RBNZ to slow the pace of cuts to 25bps per meeting to reach a terminal rate of 3.0% in July 2025. Governor Orr noted the RBNZ’s estimated neutral rate was around 2.5%-3.5% and – unless there were new shocks – he doesn’t expect the OCR to fall below neutral.” ANZ analysts were slightly more hawkish: “Our OCR forecast is unchanged: we continue to pencil in 25bp cuts in February, April and May, taking the OCR to 3.5%. As always, the speed and extent of easing will be highly data dependent, but that's particularly true given there is such a long gap to the next meeting.”

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