NZ Monetary Policy Statement - August 2025

Annual consumers price index inflation is currently around the top of the Monetary Policy Committee’s 1 to 3 percent target band. However, with spare capacity in the economy and declining domestic inflation pressure, headline inflation is expected to return to around the 2 percent target midpoint by mid-2026. New Zealand’s economic recovery stalled in the second quarter of this year. Spending by households and businesses has been constrained by global economic policy uncertainty, falling employment, higher prices for some essentials, and declining house prices. There are upside and downside risks to the economic outlook. Cautious behaviour by households and businesses could further dampen economic growth. Alternatively, the economic recovery could accelerate as the full effects of interest rate reductions flow through the economy. The Monetary Policy Committee today voted to decrease the Official Cash Rate (OCR) by 25 basis points to 3 percent. Further data on the speed of New Zealand’s economic recovery will influence the future path of the OCR. If medium-term inflation pressures continue to ease as expected, there is scope to lower the OCR further. RBNZ notes that economic growth might accelerate once rate cuts fully filter through the economy. RBNZ minutes: If medium-term inflation pressures continue to ease in line with the committee’s central projection, the committee expects to lower the OCR further RBNZ minutes: Inflation projected to rise to 3.0 percent in the September quarter, there is a significant chance it exceeds the target band.

RBNZ Governor Hawkesby: OCR is projected to bottom out around 2.5%, indicating room for further cuts. RBNZ GOV HAWKESBY: NEVER HAD A 4 TO 2 VOTE BEFORE RANGE OF VIEWS AROUND THE RISKS TO OUTLOOK RBNZ: NOT CHANGED VIEW ON NEUTRAL, OCR NOT RESTRICTIVE ANYMORE RBNZ GOV HAWKESBY: FISCAL OUTLOOK SEES GOVERNMENT SPENDING FALLING, HELPS WITH INFLATION