The Reserve Bank of New Zealand (RBNZ) has delivered a larger-than-expected 50 basis point cut to the Official Cash Rate (OCR), taking it to 2.50 per cent in a bid to stimulate a slowing economy.
The move was stronger than many economists had expected and reflects growing concern about deteriorating conditions.
Unemployment has climbed to 5.2 per cent and is expected to rise further, while underutilisation is increasing and both business and consumer confidence remain weak.
Migration outflows are also eroding the labour force, while domestic spending softens.
“With inflation steady at 2.7 per cent, the RBNZ had scope to move decisively,” Ray White chief economist Nerida Conisbee said.
“By front-loading stimulus, the central bank aims to shore up confidence and prevent conditions from worsening further. For households, the larger cut should translate to more meaningful mortgage relief, supporting budgets and spending.
“For housing, the impact may be stronger, with prices stable at $761,000, listings at 110,000, and sales plateaued at 78,000. A larger cut could tilt sentiment upward, though the market remains one of equilibrium rather than growth.”
Ray White New Zealand chief executive Daniel Coulson described the move as “decisive” and said it would be welcomed by borrowers and business owners.
“Today’s decision was a clear signal that [the RBNZ] recognises the need for meaningful economic stimulus,” Mr Coulson said.
“After a prolonged period of financial pressure, today’s decision will be warmly received by mortgage holders, aspiring homeowners, and business owners alike. By acting decisively, the RBNZ has provided much-needed breathing room and reignited optimism that the economy can return to a more sustainable growth path.
“For home buyers, reduced borrowing costs mean budgets can now stretch further, improving purchasing power and creating new opportunities across the property market. Each time we have seen a similar move in the past, it has had an immediate positive effect on sales activity, with confidence and enquiry levels rising in the weeks that follow.”
Ray White New Zealand recorded a 9.6 per cent lift in national sales volume in September, as demand began to strengthen.
CoreLogic chief property economist Kelvin Davidson said the central bank faced little debate about whether to cut, with the main question being the size.
“This was a Monetary Policy Review month, as opposed to the full Statement with forecasts, but we still got enough detail to show that economic weakness and spare capacity remain the key concerns — running the risk that inflation could undershoot the 1–3 per cent target band down the track,” Mr Davidson said.
“The bigger, front-loaded 0.5 per cent cut was probably seen as the least-regrets option rather than a more cautious 0.25 per cent move. Another fall on 26 November is possible too.”
Mr Davidson said the immediate housing market response may be muted, given banks had already been reducing mortgage rates, particularly for one-year fixed loans.
“The subdued labour market is the key restraint on the other side of the equation at present, and it will be slower to start improving — maybe not until next year,” he said.
“All in all, it’s taking a lot of work to get this economy turning around and today’s decision will hopefully be the ‘shock treatment’ required to get everyone back into gear.
“The recent green shoots we’ve been seeing should emerge fully in 2026, and as unemployment starts to drop again, it seems likely we’ll see house prices rise next year. But the debt-to-income ratio caps are one reason to be cautious about the size and speed of medium-term growth in property values.”
