The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate by 25 basis points to 2.25% on Wednesday, matching market expectations but delivering a surprisingly hawkish message that sent the New Zealand dollar surging across the board.
The Monetary Policy Committee voted 5-1 in favor of the reduction, with one member preferring to hold rates unchanged at 2.50%. This marked a dramatic shift from August’s unprecedented 4-2 split vote, where the minority had pushed for a larger 50bp cut.
Overall, the RBNZ emphasized that while economic activity was weak over mid-2025, it is now picking up. Lower interest rates are encouraging household spending, and the labor market is stabilizing. The exchange rate has fallen since August, supporting exporters’ incomes.
The committee discussed holding the OCR at 2.5% vs cutting to 2.25%. The case for holding emphasized the considerable reduction in the OCR to date and improving economic indicators, with particular emphasis on upside risks to inflation. The case for cutting emphasized significant excess capacity in the economy and the early stage of recovery.
Key Takeaways from the RBNZ Decision
- RBNZ cut OCR by 25bp to 2.25% in 5-1 vote, with dissenter favoring no change
- Annual CPI at 3.0% in September quarter, but expected to fall to around 2% by mid-2026
- Central projection shows OCR on hold through 2026, with rate track bottoming at 2.20% in Q1 2026
- Economy showing early recovery signs with stabilizing labor market and improving household spending
- Committee signals balanced risks, effectively closing the door on further easing absent a major shock
- Final decision for outgoing Governor Christian Hawkesby before Anna Breman takes over in December
Link to official RBNZ Statement (November 2025)
In his press conference, Governor Christian Hawkesby struck a notably less dovish tone than in previous meetings. He stated the central bank had published “a central projection that would be consistent with the official cash rate being on hold through the course of 2026 and one where we feel the risks are balanced.”Hawkesby added that the committee feels “risks are balanced” and that New Zealand is “in a great position to mitigate risks.” He noted the current cash rate is “supportive and stimulatory” and that “we’re now seeing economic indicators picking up across all high frequency indicators.”
Link to Gov. Hawkesby’s November 2025 press conference
The central bank’s updated economic forecasts showed the OCR at 2.20% in March 2026 and 2.28% in December 2026, significantly higher than the August projections of 2.55% and 2.62% respectively. This hawkish revision suggests policymakers believe the current rate level provides sufficient support for economic recovery.
Annual consumer inflation increased to 3% in the September quarter, the top of the RBNZ’s 1-3% target band. However, with significant spare capacity in the economy, inflation is expected to fall to around 2% by mid-2026. The committee noted that both core and non-tradables inflation have continued to decline.
Market Reactions
New Zealand Dollar vs. Major Currencies: 5-min
Overlay of NZD vs. Major Currencies Chart by TradingView
The rallies are a sharp break from the pattern seen in August and October, when dovish messages from the RBNZ sent Kiwi straight to the floor. This time, everything pointed in the opposite direction, and we don’t have to look far for potential explanations:
- Hawkish rate projections showed no more cuts through 2026, wiping out expectations for a move to 2.00 percent.
- The 5-1 vote with the dissenter favoring no change marked a complete reversal from August’s unprecedented 4-2 split where two members wanted a 50bp cut. This suggested the committee’s center of gravity had shifted decisively hawkish.
- The RBNZ’s note that economic activity is picking up hinted that New Zealand may have already turned the corner after the mid-year slump.
With 325 basis points of cuts already in the bag since August 2024, the RBNZ now looks far more front-loaded than its peers, which makes the idea that they are done cutting while others keep easing a very real part of the market narrative.
NZD is mostly up by 1% against most majors heading into the London session, with the most gains seen against USD, JPY, and EUR, while printing more limited gains against AUD, GBP, and CHF.