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RBNZ: Expecting To Return Policy To Neutral, Leaves Door Open For Another 50bp

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The MPC only discussed a 50bp rate cut this month as that amount “felt right” given headline inflation is close to the target mid-point and excess capacity persists. The OCR path implies another 50bp in February, which Governor Orr confirmed in his press conference as policy is still restrictive, but it is contingent on the economy developing as the RBNZ expects. 

  • A return to a “neutral world” is currently projected and hoped for. The RBNZ estimates the neutral rate at 2.5-3.5% with policy currently expected to return to the top of that range by end-2025 and the mid-point in 2027. Without a major shock, the MPC currently doesn’t expect policy to go below neutral.
  • Orr specifically ruled out rate hikes in the short-term.
  • The RBNZ expects core inflation to fall within the band given continued excess capacity. It also doesn’t expect headline to fall below target but Orr stated that the series is volatile and global factors could increase that over the medium-term.
  • Orr said that the MPC is in a “positive position” in terms of inflation and in the short-term it is happy with its monetary policy position. But in the medium-term volatility is expected to rise due to global trade shifts and climate change. Most central banks are preparing for this in 2026 and 2027.
  • The focus should be on the direction of growth forecasts rather than the size, and the RBNZ expects activity to begin recovering from next year.
  • House prices are forecast to rise 7% per year, less than in the past due to debt-to-income and LTV ratios as well households continuing to struggle due to rising unemployment and monetary policy lags.
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The MPC only discussed a 50bp rate cut this month as that amount “felt right” given headline inflation is close to the target mid-point and excess capacity persists. The OCR path implies another 50bp in February, which Governor Orr confirmed in his press conference as policy is still restrictive, but it is contingent on the economy developing as the RBNZ expects. 

  • A return to a “neutral world” is currently projected and hoped for. The RBNZ estimates the neutral rate at 2.5-3.5% with policy currently expected to return to the top of that range by end-2025 and the mid-point in 2027. Without a major shock, the MPC currently doesn’t expect policy to go below neutral.
  • Orr specifically ruled out rate hikes in the short-term.
  • The RBNZ expects core inflation to fall within the band given continued excess capacity. It also doesn’t expect headline to fall below target but Orr stated that the series is volatile and global factors could increase that over the medium-term.
  • Orr said that the MPC is in a “positive position” in terms of inflation and in the short-term it is happy with its monetary policy position. But in the medium-term volatility is expected to rise due to global trade shifts and climate change. Most central banks are preparing for this in 2026 and 2027.
  • The focus should be on the direction of growth forecasts rather than the size, and the RBNZ expects activity to begin recovering from next year.
  • House prices are forecast to rise 7% per year, less than in the past due to debt-to-income and LTV ratios as well households continuing to struggle due to rising unemployment and monetary policy lags.