
Dropping like it’s hot: The fall and fall of the OCR
The fall and fall of the Official Cash Rate – what does it all mean? Metropol’s Tamara Pitelen investigates.
Did the economy get a boost from the Official Cash Rate (OCR) cut by the Reserve Bank of New Zealand (RBNZ) last month? That is the million-dollar question and opinions vary amongst the people who watch these things closely. Many hoped for a deeper cut to act as a more powerful jumpstart for our struggling economy.
First, some background. The RBNZ use the OCR to keep prices stable and inflation within government targets, which is between 1% and 3% over the medium term with a focus on the 2% midpoint.
On 28 May the RBNZ cut the OCR by 0.25%, bringing the cash rate down to 3.25%. For now. The next review of the OCR is coming on 9 July and the RBNZ has signalled it’s likely to be cut further; its current forecast anticipates the bottom to be 2.75% by about March 2026.
On making the most recent OCR announcement, RBNZ chief economist Paul Conway said: “Lower interest rates in the economy are encouraging households to spend more and businesses to invest. When we combine that with strong earnings in parts of our export sector, these lower interest rates are helping the economy to recover. But there is high uncertainty both here and abroad about the economic effects of global tariffs.”
LOWER LENDING
A drop in the OCR does tend to lead to more favourable lending conditions, lower interest rates in other words. While banks don’t always immediately reflect these cuts in their mortgage rates, it’s expected that even more competitive lending offers are on the horizon, providing more flexibility for those planning ahead.
So far though, there’s been little cut-through on this. As economist Tony Alexander wrote in his June 2025 newsletter, “data from Statistics NZ tell us consumers are not responding to lower interest rates by raising their spending”. “People are firmly saying that they intend keeping their wallets closed,” Tony writes.
In the wake of the most recent OCR cut, Kiwibank chief economist Jarrod Kerr wrote: “There’s no doubt that the Kiwi economy needs support. The risks to the growth outlook are tilted to the downside… the Government’s hands are tied (self-inflicted). So, we look to the RBNZ. In the current environment, with a future clouded by the tariff trade war, there’s more for the central bank to do to support the recovery.”
Let’s not forget that back in 2015, the OCR rate was dropped to 2.5%. At the time, the RBNZ said: “Globally, economic growth is below average and inflation is low… markets are also focused on the expected tightening of policy in the United States and the prospect of an increasing divergence between monetary policies in the major economies.” As the old saying goes, ‘everything changes and everything stays the same.’
HOUSE PRICES
What does it mean for house prices? In truth, no one really knows, however, the RBNZ are forecasting that house prices will recover to their 2022 peak over the next three years to 2028.
Currently though, latest REINZ data is telling us house prices are falling again (down three months in a row). Why? Several reasons. The REINZ lists factors including the fall in net migration; developers trying to sell excess stock (mostly townhouses); low job security; buyers wielding bargaining power, and an over-supply of rental property, all contributing to keeping house prices at the same level for the last four years.
As Opes Partners managing director Andrew Nicol writes: “Can we rely on the Reserve Bank’s house price forecast? No. House prices are notoriously hard to forecast. But for what it’s worth, they expect prices to rise 4.9% over the next 12 months.”
Whether that’s a positive or negative thing depends on whether you’re buying or selling.
Ultimately, though, the messaging from the RBNZ and their regular downgrading of growth projections suggests that the expected recovery in economic activity is forecast to be slower than projected in February – the RBNZ now projects 0.7% growth this year, down from 1%.
To use the word that the RBNZ wrote no fewer than 164 times in their 60-page Monetary Policy statement on 28 May, things remain ‘uncertain’.