New Zealand Institute of Economic Research (Inc)
Media release, 25 November 2025
For immediate release
Despite a rapid succession of OCR cuts, demand in the New Zealand economy has remained soft, reflecting the delayed passthrough of monetary policy easing and soft labour market conditions. This lag (one to two years) in the transmission of monetary policy reflects the large proportion of New Zealand mortgages on fixed-term rates. Although lower interest rates are gradually filtering through to households as many borrowers reprice their mortgages onto lower rates, the soft labour market continues to weigh on discretionary spending.
Weak momentum in the recovery has led the Reserve Bank of New Zealand (RBNZ) to ease monetary policy further to support the New Zealand economy. The RBNZ cut the OCR by 50 basis points at its October meeting, and left the door open to further cuts.
Consumer sentiment towards big-ticket purchases remains cautious, and hiring intentions have been subdued. Although the unemployment rate rose to 5.3 percent in the September quarter, this largely reflects the usual lag between weaker economic activity and labour market adjustment. We forecast the unemployment rate to peak at 5.5 percent in early 2026 before easing as hiring demand picks up.
We expect that, as many households face further reductions in mortgage repayments due to the repricing of their mortgage rates over the next one to two years, the monetary policy easing to date will support a broader recovery in demand in the New Zealand economy. We forecast that annual average GDP growth will pick up to just over 3 percent by 2028.
Annual CPI inflation edged up to the top of the RBNZ’s 1 to 3 percent inflation target band in the September quarter. Encouragingly, core inflation and inflation expectations measures suggest underlying inflation is contained in the New Zealand economy. Nonetheless, the recent lift in cost and pricing indicators in the latest NZIER Quarterly Survey of Business Opinion highlights the need for vigilance against the persistence of high inflation.
The combination of soft demand and upside inflation risks highlights the challenge for the RBNZ in supporting the recovery without risking inflation remaining persistently high. In balancing these developments, we expect the RBNZ will undertake one further 25 basis point OCR cut in its November meeting and for the OCR to trough at 2.25 percent in this cycle.
Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.
For further information, please contact:
Christina Leung, Deputy Chief Executive (Auckland) & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985