The Reserve Bank of New Zealand has slashed the official cash rate by 50 basis points to 2.5 per cent this week, with peak body Retail NZ hoping this will boost consumer confidence ahead of the peak season.
According to RBNZ, the cash rate cut comes amid a weakening economy alongside a predicted slump in inflation by mid 2026.
“Economic activity through the middle of 2025 was weak,” RBNZ shared in a media statement. “In part, this reflects domestic constraints on the supply of goods and services in some industries, and the impact of global economic policy uncertainty.
“Household consumption is recovering, partly because of lower interest rates, and elevated commodity prices continue to support the primary sector. House prices are flat, and residential and business investment remain weak.”
RBNZ added that economic growth in New Zealand’s trading partners is “proving resilient”, partly because of strong investment in AI-related activity. But the bank expects this to slow in 2026.
“There are upside and downside risks to the inflation outlook in New Zealand,” RBNZ continued. “Cautious behaviour by households and businesses could slow the economic recovery, reducing medium-term inflation pressure. Alternatively, higher near-term inflation could prove to be more persistent.
“On balance, the Committee reached consensus to reduce the OCR by 50 basis points to 2.5 percent. The Committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2 percent target mid-point in the medium term.”
Retail NZ CEO Carolyn Young said the 50 basis point cut will help put more cash into consumers’ pockets. “We hope it will give them the confidence to enjoy some discretionary spending,” she said.
This comes after Worldline NZ data for consumer spending in September, released on Monday this week, showed a small increase of 1.1 per cent in September 2024. This is off a low base prior.
“Although consumer confidence remains fragile amid persistent inflation in essentials like food, electricity and insurance, retailers are starting to see some light at the end of the tunnel,” Young said.
The latest NZ Institute of Economic Research’s Quarterly Survey of Business Opinion, also released this week, found that retailers were the most optimistic sector surveyed in the September quarter, despite continued weakness in new orders and sales.
“As NZIER noted, more than 40 per cent of mortgages are due for repricing over the coming six months. On average, this is expected to put an extra $350-$400 per month in consumers’ pockets,” Young said.
“We hope today’s OCR cut will continue to support a recovery in retail demand. This will help give retailers confidence to buy stock and retain staff in the run up to the end of the year.”
The cash rate cut in New Zealand comes as Australia's cash rate remains at 3.6 per cent, with the Reserve Bank of Australia holding the cash rate there in September following a cash rate cut in August.