OCR predictions NZ 2025

As you can see from the above table, the Reserve Bank predicts that there's a chance they will reduce the OCR by 0.25 basis points in either there August or October announcements. This means the OCR will most likely reach 3.0% by late 2025. 

The Reserve Bank is forecasting one more cut late 2025 or early 2026, expecting the OCR to end up at either 3.00%, or 2.75% by the end of the 2026. In 2027, the RBNZ says the OCR may plateau then start increasing to settle around 3.0%.

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

Kiwibank forecasts that the OCR will go lower and stay lower than most other banks, dropping to 2.50 by the end of 2025 and staying there throughout 2026. Here's what their economists wrote in their June commentary:

"For the RBNZ, they will need to move policy settings from restraining the economy to supporting it. The outlook requires further easing. The RBNZ has delivered 225bps of cuts since August 2024, and we forecast another 75bps to set policy at more stimulatory levels. A 2.5% cash rate is still our forecast terminal rate, although the path toward is shrouded in uncertainty."

Economists at New Zealand’s largest bank usually take a conservative approach to forecasting, but their recent OCR predictions buck that trend. They believe the rate will go to 2.50 by early 2026, before increasing in December that year.  In a 1 August Weekly Wrap paper they explained their reasoning:

" ... local markets have been reluctant to price in a lower OCR endpoint. That is understandable given caution on the part of the RBNZ and lingering inflation concerns, but we remain of the view that there is ample spare capacity in the economy, paving the way for three more 25bp OCR cuts."

In their July Market Outlook paper, BNZ’s economists said they expect the OCR to settle around a low point 0f 2.75% after rate cuts in August and October. They expect it will start to increase throughout 2026, but this view is always dependant on changing inflation data. 

Westpac believe that the OCR will remain much higher than the RBNZ and other major banks, with one more cut in August and none thereafter. They believe the rate will plateau at 3.0% before increasing again in late 2026, but in their 7 August Economic Bulletin they don't sound 100% confident about that forecast:

"Against this backdrop, we expect the RBNZ will deliver another 25bp rate cut at this month’s policy review. It’s unlikely that the RBNZ will call time on the easing cycle just yet as the economy is yet to decisively and sustainably turn."

ASB's OCR forecast is a little conservative - they expect just one cut in August followed by no cuts or increases through to at least late 2026. In their 04 August Economic Weekly they did however explain that there is possibility of further cutting below 3.0%:

" ... Risks are tilting to a faster pace of OCR cuts ..."

"We expect a 25bp cut in August and a 3.0% OCR trough, with the risk of a sub 3% OCR by year end."

Many of the economists at major banks and the Reserve Bank differ slightly on how low the OCR will go and when the cutting will stop.

• Most agree there will be a 0.25 basis point cut in August. 

• Following that there is a possibility of one or two more 0.25 bp cuts in 2025 and early 2026 before the OCR plateaues at 2.5-3.0%.

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’ or slightly stimulatory OCR of 2.5% to 3.0% 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. That's because banks have already factored OCR cuts into many of their rates, particularly their long term ones (and the OCR isn't the only thing that affects rates). 

Most forecasts say that longer term interest rates (2, 3 and 5 years) may not decrease much further (or at all) even as the OCR falls. They may even increase. Six month, one year and floating rates should decrease, but not by an equal amount to the OCR. ANZ provided a word of advice in their November Property Focus:

“ ... a 25bp OCR cut is very likely next month. And with high-frequency data consistent with an economic recovery that is stalling rather than gathering momentum, we expect more cuts after that too, pencilling in 25bp follow-up OCR cuts in November and February. That very much plays into the idea that borrowers have time on their side before choosing to extend the duration of their fixes at the low point of the cycle.