Rate cuts forecast to continue into 2026
The Reserve Bank of New Zealand (RBNZ)’s decision in August to cut the official cash rate (OCR) by 0.25 percentage points has sparked renewed debate about where interest rates are heading next. While the move to 3.00% was widely expected, Cotality Chief Property Economist Kelvin Davidson said the key takeaway was the Monetary Policy Committee’s clear “downwards bias” – which signals that further rate cuts may be on the horizon.
Mr Davidson said the August rate cut had been clearly signalled at the previous meeting in early July, and that economic and inflation data had evolved broadly as expected since then. He also noted that the forecasts released at the same time as the OCR decision pointed to further weakness in the economy.
“Indeed, the forecasts that came alongside the Monetary Policy Statement (MPS) showed GDP may not have bottomed out yet (possible -0.3% drop in Q2) and that the unemployment rate could still rise a little further,” he said.
“Inflation could go a bit higher, due to the tradeable/imported component, but spare capacity in the economy should mean this doesn’t last. It seems fair to conclude from these projections that another one or even two OCR cuts lie ahead, with the first potentially delivered at the next MPS on 26th November.”
Mr Davidson said that saving a rate cut for the last meeting of the year “could be an opportunity to support households further over the holiday period”, given that the next meeting would not occur until late February.
“Note that the Reserve Bank’s own forecast track for the OCR has it reaching a trough of somewhere close to 2.50% by the middle of next year,” he added.
Limited impact on the housing market
Mr Davidson said the August decision was likely to have a minimal impact on the housing market. “If anything, the possibility of more falls in mortgage rates than previously thought could lift activity and house prices a bit. But those rate changes may be fairly minor,” he said.
He added that the economic and labour market outlook remained disappointing, which would weigh on housing.
“Those concerns about job security might mean that many existing borrowers who are rolling off higher fixes from the past and down onto the new prevailing mortgage rates might choose to save their extra cash or reduce the term of their loan (by keeping repayments the same) rather than spend it in the economy or property market,” he said.
“All in all, the rest of 2025 for New Zealand’s housing market may be just as subdued as the first seven to eight months of the year.”
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