OCR predictions NZ 2025

This is expected to occur at a decreased rate, compared to 2024. If the RBNZ’s OCR predictions are correct we should see a further three 25 bp cuts next year, possibly in the February and April reviews, followed by one more later in the year. By the end of the year the OCR should be 3.5%. 

The Reserve Bank is forecasting one or two cuts in 2026, expecting the OCR to end up at either 3.25% or 3.0% by the end of the year. In 2027, the RBNZ says we may get one more cut, before the OCR settles at a neutral level of around 3.0%.  

(Note: The Reserve Bank notates their forecasts imprecisely, so we’ve rounded some figures to provide a clearer picture). 

After the November cut, Kiwibank’s economists wrote that we need more, and fast, so they’re predicting another 50 basis point cut in the next OCR review in February. They’ve also revised their forecast for the OCR’s low point up from 2.5%.

They claim that the bank is cutting too slowly and causing unnecessary damage (or scarring) to the economy:

“... Now we just expect the RBNZ to stop at 3%. The RBNZ is more comfortable than we are with the economic scarring inflicted and likely recovery. We think the RBNZ’s bias may be moving in the wrong direction, as they did in May. They’re too hawkish. Time will tell.”

Economists at New Zealand’s largest bank expect that the Reserve Bank will continue to cut the OCR in 2025, albeit at a decreased rate. They say it will reach 3.5% by the middle of the year, but interest rates may not follow in lock-step:

“… While short-term fixed mortgage rates that tend to move more in step with the OCR (like 6mths and 1yr) have scope to fall a little further, rates like the 3yr, 4yr and 5yr may not fall further, especially with global long-term interest rates on the rise again.”

In their November Market Outlook paper, BNZ’s economists said they expect the OCR to settle around its last low point (3.0%) earlier than previously expected in mid 2026. They say there’s a chance it could go lower:

“We continue to forecast the RBNZ will cut rates below 3% next year, a level which corresponds with its estimate for the long-term neutral Cash Rate.”

Westpac are with the majority of other banks in predicting a 50 basis point cut at the next OCR review in February 2025. They say the OCR will also trough sooner, rather than later with cuts until May 2025:

“After that [the February cut], uncertainty around the OCR outlook is higher, but we think the easing cycle will be over by mid-year, with the OCR still troughing at 3.5%.”

While most economists are expecting another 50 basis point cut at the next OCR review in February 2025, ASB is predicting 25. They also expect a higher bottom point for the cash rate than most other bank economists, predicting the OCR will settle at around 3.5%. 

The economists at major banks and the Reserve Bank are mostly aligned with their NZ OCR forecasts:

• If their predictions are accurate the cash rate will be 3.0-3.5% by mid 2025 (probably by the May or July Monetary Policy Statement meeting). 

• That means we’re due cuts of 75 to 125 basis points in the next eight months. 

• Most predictions expect a 50 basis point cut in February, followed by successive 25 basis point cuts. 

In summary, forecasters expect the OCR to continue its downward trajectory for the short term future, but it won’t reach the record lows of the COVID-era (0.25%). A ‘neutral’ OCR of 3.0% to 3.5% that neither stimulates or suppresses the economy is more likely. 

As the OCR decreases some interest rates should too, but not all of them, and perhaps not as much as people expect. Here’s why:

• Banks have already priced in some of the OCR cuts to their interest rates. 

• The OCR isn’t the only thing that affects interest rates. The banks borrow from other sources, and those costs also affect the interest rates they offer you. 

• Some of these costs are expected to increase, which will balance out the effect of OCR cuts. 

Most forecasts say that longer term interest rates (2, 3 and 5 years) may not decrease much further even as the OCR falls. Six month, one year and floating rates should decrease, but not by an equal amount to the OCR. The general consensus among economists is that one year rates should fall to around 5.0% by late 2025/mid 2026, while longer term rates won’t move as much (and they may even increase). ANZ provided a word of advice in their November Property Focus:

“So, anyone who wants to try to lock in at the bottom may want to start thinking about how much longer they want to wait. As always, fixing for a mix of terms is one sure way to spread risk.”

Read interest rate forecasts for 2025 from experts and economists.