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RBNZ: OCR Path Suggests Another 50bp In February 2025

RBNZ
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The RBNZ cut rates 50bp to 4.25% as was widely expected by economists and the market as it felt “more confident to continue removing” policy restrictiveness given inflation is close to the target mid-point and underlying measures are “converging” on it. It published a revised set of forecasts, which if the economy develops close to it expectations it should be able to cut rates further. Its OCR profile implies 50bp of easing in February.

  • The policy assessment was similar to October’s but did shift slightly more dovish with “future changes to the OCR” changed to “expects to be able to lower the OCR further”. The impact of lower import prices was added as well as global policy uncertainty adding to “increased economic and inflation volatility”.
  • The OCR profile has Q1 2025 50bp below the Q4 2024 average but then Q2 is 25bp below Q1 and Q4 is around 25bp below Q2. It suggests that easing has been frontloaded compared with August expectations with end-2025 around 25bp lower, end-2026 similar and the terminal rate still around 3.0%.
  • Inflation forecasts were revised down in the near-term reflecting the lower-than-expected Q3 outcome with H1 2025 averaging around 2% down 0.2pp, but H2 has been revised 0.2pp higher to around 2.5% and H1 2026 to 2.3%. Inflation doesn’t return to the 2.0% mid-point until Q2 2027 a year later than in August, but the difference is only 0.1pp and the error band widens the further out we look.
  • Growth has been revised lower across 2025, 2026 and 2027 averaging 0.6% rises per quarter.
  • Lower Q3 2024 unemployment has driven most of the downward revision in the unemployment rate across the forecast horizon. It is now expected to peak at 5.2% in Q1 2025 and then ease to 4.3% by Q2 2027.
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The RBNZ cut rates 50bp to 4.25% as was widely expected by economists and the market as it felt “more confident to continue removing” policy restrictiveness given inflation is close to the target mid-point and underlying measures are “converging” on it. It published a revised set of forecasts, which if the economy develops close to it expectations it should be able to cut rates further. Its OCR profile implies 50bp of easing in February.

  • The policy assessment was similar to October’s but did shift slightly more dovish with “future changes to the OCR” changed to “expects to be able to lower the OCR further”. The impact of lower import prices was added as well as global policy uncertainty adding to “increased economic and inflation volatility”.
  • The OCR profile has Q1 2025 50bp below the Q4 2024 average but then Q2 is 25bp below Q1 and Q4 is around 25bp below Q2. It suggests that easing has been frontloaded compared with August expectations with end-2025 around 25bp lower, end-2026 similar and the terminal rate still around 3.0%.
  • Inflation forecasts were revised down in the near-term reflecting the lower-than-expected Q3 outcome with H1 2025 averaging around 2% down 0.2pp, but H2 has been revised 0.2pp higher to around 2.5% and H1 2026 to 2.3%. Inflation doesn’t return to the 2.0% mid-point until Q2 2027 a year later than in August, but the difference is only 0.1pp and the error band widens the further out we look.
  • Growth has been revised lower across 2025, 2026 and 2027 averaging 0.6% rises per quarter.
  • Lower Q3 2024 unemployment has driven most of the downward revision in the unemployment rate across the forecast horizon. It is now expected to peak at 5.2% in Q1 2025 and then ease to 4.3% by Q2 2027.