FX.co ★ RBNZ Delivers Oversized 50 bps Rate Cut

In its meeting held in October 2025, the Reserve Bank of New Zealand unexpectedly reduced its official cash rate by 50 basis points, bringing it to 2.5%. This decision exceeded market expectations, which predicted a 25 basis point cut, and set borrowing costs at their lowest since mid-2022. The bank's policymakers attributed this substantial reduction to ongoing excess capacity, muted domestic activity, and potential economic risks arising from the cautious approach of households and businesses, which threaten to hinder economic recovery. Although inflation hovers near the upper limit of the 1–3% target range, forecasts suggest it will settle at the midpoint of 2% by mid-2026 as the pressures from tradable goods subside. The headline inflation rate is pegged at 3% for the third quarter, spurred by increased administered prices, food costs, and tradable goods, although the core inflation for non-tradables shows signs of moderation. Despite persistent challenges such as supply bottlenecks and global policy unpredictability, economic activity has been subdued, while consumer spending shows signs of gradual recovery. The Committee remains amenable to implementing further easing measures to stabilize inflation around the 2% goal.