FX.co ★ RBNZ Cuts Key Rate as Expected

The Reserve Bank of New Zealand has reduced its official cash rate by 25 basis points, bringing it down to 2.25% in its final meeting of the year—an action anticipated by many. This adjustment positions borrowing costs at their lowest since mid-2022. The policymakers justified this decision by pointing to considerable spare capacity within the economy and a softening of inflation pressures. Although the annual Consumer Price Index (CPI) climbed to the upper limit of the 1-3% target range in the third quarter, both core inflation and non-tradables inflation are showing signs of moderation. This supports the forecast that inflation will revert to 2% by the middle of 2026. Meanwhile, economic activity has remained sluggish through the middle of 2025, with GDP experiencing a contraction in the second quarter, although short-term indicators hint at a gradual recovery. The central bank highlighted that risks are balanced, warning that subdued household and business confidence might impede the recovery, whereas a surge in housing or export-driven demand could render inflation more persistent. The Monetary Policy Committee emphasized that future decisions will be contingent upon the economic and inflation outlook.