NZ OCR Rate Cut Assessment: IMF 2025 Outlook
New Zealand’s Official Cash Rate has fallen from 5.5% to 3.25% since August 2024, and the IMF has just endorsed that path as appropriate. This article examines the OCR’s current level, the IMF’s 2025 Article IV assessment, and what lies ahead through 2026.
Current OCR (May 2025): 3.25% ·
IMF-projected neutral rate: 3.25% by mid-2025 ·
RBNZ easing started: August 2024 ·
Rate cutting cycle ranking: Second fastest in 25 years ·
Next OCR decision date (2026): 27 February 2026 ·
Inflation target zone: 1–3% (midpoint 2%)
Quick snapshot
- Current OCR is 3.25% as of 28 May 2025 (Westpac IQ)
- IMF recommended reaching 3.25% by mid-2025 (IMF)
- RBNZ has made five cuts since August 2024 (IMF Executive Board statement)
- Inflation is within the target band at 2.2% (Stats NZ) (Westpac IQ)
- Whether the OCR will drop further below 3.25% in 2026
- Impact of global economic conditions on future RBNZ decisions
- Exact timing of when the economy will fully recover from the 2024 recession
- First cut: August 2024 (from 5.5% to 5.25%) – IMF
- IMF recommendation: March 2025 – IMF
- Current level reached: May 2025 – Westpac IQ
- Next decision: February 2026 – RBNZ calendar
- Further cuts depend on economic conditions – RBNZ
- RBNZ maintains easing bias – Westpac IQ
- Market pricing suggests possible additional reductions – Westpac IQ
The table below summarizes the most important OCR figures.
| Label | Value |
|---|---|
| Current OCR | 3.25% |
| Date of last cut | 28 May 2025 |
| Total cuts since August 2024 | 5 cuts (from 5.5% to 3.25%) |
| IMF neutral rate estimate | 3.25% |
| Next OCR decision date | 27 February 2026 |
| Inflation rate (Q1 2025) | 2.2% |
Is the OCR likely to drop in New Zealand?
RBNZ’s rate cutting cycle since August 2024
The Reserve Bank of New Zealand began its easing cycle in August 2024, when it cut the OCR from 5.5% to 5.25% — the first reduction in over four years. By May 2025, the RBNZ had delivered five consecutive cuts, bringing the rate down to 3.25%. As the Westpac IQ economics team noted, the RBNZ maintained an easing bias after the April 2025 cut and saw “downside risks to the medium-term inflation outlook.” The path for interest rates looked clear for further reductions.
Five cuts in nine months — the RBNZ’s easing cycle is the second fastest in 25 years, according to the IMF’s May 2025 executive board summary. That pace tells you how seriously the central bank views the economic soft patch.
Current economic indicators influencing further cuts
The RBNZ’s decisions are grounded in real-time data. Annual CPI inflation stood at 2.2% in Q1 2025, squarely inside the target band of 1–3%. GDP grew 0.5% in Q1 2025, suggesting a recovery after two quarters of technical recession in the second half of 2024. However, the unemployment rate rose to 4.7% in Q1 2025, and business confidence remains fragile. Westpac noted that the RBNZ recognized “high uncertainty from global developments” unfolding in April 2025, particularly trade-related risks.
Inflation is tame, but unemployment is rising. The RBNZ faces a trade-off: keep cutting to support a weak labor market, or pause to ensure the global trade shock doesn’t re-ignite prices through import channels.
Market expectations versus official projections
Financial markets had priced the April 2025 cut “more than fully” in advance, according to Westpac IQ. The RBNZ’s February 2025 Monetary Policy Statement projected the OCR would remain around 3.25% through 2026. But market pricing suggests further cuts are possible. The gap between official projections and market expectations is the key uncertainty: if the economy weakens more than the RBNZ forecasts, the OCR could go lower.
What this means: The RBNZ is in data-dependent mode. If inflation stays contained and the labor market softens further, another cut in 2026 is plausible. If global trade tensions push import prices up, the pause could last longer.
What are the key OCR dates to watch for in 2026?
Monetary Policy Statement calendar for 2026
The RBNZ releases its Monetary Policy Statement four times a year, each accompanied by a full OCR decision, updated economic forecasts, and a press conference by the Governor.
- 27 February 2026
- 22 May 2026
- 28 August 2026
- 20 November 2026
What happens on each decision date
Each of the four annual OCR announcements follows a structured format. At 2:00 PM NZST, the RBNZ publishes the Monetary Policy Statement, which includes the OCR decision, updated GDP and inflation forecasts, and the committee’s assessment of risks. At 3:00 PM, the Governor holds a press conference. The decisions are made by the Monetary Policy Committee, which comprises internal RBNZ members and external appointees.
Why this matters: These four dates are the only times the OCR can change between scheduled reviews. For anyone with a floating mortgage or business loan, these dates matter. (Business Loan Calculator NZ: Compare Top Repayments & Rates)
Is New Zealand heading into a recession?
GDP growth data for 2024–2025
New Zealand experienced a technical recession in the second half of 2024, with two consecutive quarters of negative GDP. However, GDP grew 0.5% in Q1 2025, suggesting a tentative recovery. The IMF’s Article IV staff statement from March 2025 projected GDP growth of 1.2% for full-year 2025 and 2.5% for 2026, a gradual improvement that depends on monetary easing working through the economy.
Growth is returning, but unemployment is still rising. If the IMF’s 1.2% growth forecast proves too optimistic, the recession narrative could return — and the RBNZ would face pressure to cut faster.
Leading indicators: business confidence, consumer spending
Business confidence surveys show a mixed picture. Consumer spending remains subdued, and the housing market has not rebounded as strongly as some expected. The RBNZ noted in April 2025 that the domestic economy had evolved “in line with February expectations,” but flagged global trade developments as a major uncertainty.
IMF and Treasury outlook
The IMF’s Article IV consultation, concluded on 26 May 2025, endorsed the RBNZ’s easing path. The IMF stated that OCR cuts had “brought the policy rate closer to the neutral rate” and described the pace as timely. The New Zealand Treasury’s most recent Budget Economic and Fiscal Update projects similar growth trajectories, with the economy returning to trend by late 2026.
The implication: A second recession appears unlikely at this point, but the recovery is fragile. The IMF and RBNZ are betting that rate cuts will do the job — if they’re wrong, the next recession could be deeper.
What is the current OCR rate in New Zealand?
Latest OCR announcement (28 May 2025)
The OCR was lowered by 25 basis points to 3.25% on 28 May 2025. This is the lowest OCR since March 2023. The reduction was widely expected by markets and brought the policy rate into alignment with the IMF’s neutral rate estimate. The RBNZ’s Monetary Policy Committee voted unanimously for the cut.
How the OCR affects mortgage and savings rates
The OCR is the benchmark for retail interest rates in New Zealand. When the OCR falls, banks typically reduce floating mortgage rates and term deposit rates. Fixed mortgage rates also trend lower, though they are influenced by wholesale swap rates too. As of late May 2025, floating mortgage rates have dropped below 7%, while one-year fixed rates are around 5.8% at major banks.
What this means: For borrowers, the May cut puts real money back in monthly budgets. For savers, term deposit rates are falling, making it harder to earn a meaningful return on cash.
Will interest rates drop to 3% again?
Historical context: OCR at 3% or below
The OCR was at 3% or below from August 2019 to October 2021, reaching a record low of 0.25% in 2020 during the pandemic emergency. Economist perspectives suggest that a return to sub-3% levels is not assured, but it is not out of the question either. The RBNZ’s February 2025 MPS projected the OCR to remain around 3.25% through 2026, as noted by the IMF’s March 2025 staff assessment.
Forecasts from RBNZ and market economists
Market economists are split. Some see the OCR settling at 3.0% by late 2026 if growth disappoints. Others argue that 3.25% is the cyclical floor, given the IMF’s neutral rate estimate of 3.25%. The difference hinges on whether neutral has shifted lower post-pandemic — a question no one can answer with certainty yet.
Factors that could prevent a drop below 3%
- Persistent services inflation above the midpoint of the target band
- A rebound in global commodity prices
- A weaker New Zealand dollar fueling import price inflation
- Tighter fiscal policy offsetting monetary easing
The trade-off: A drop below 3% would require a significant deterioration in the economic outlook — something the RBNZ and IMF are both trying to avoid. If it happens, it’s a sign of distress, not success.
What is the IMF’s assessment of New Zealand’s OCR cuts?
Key findings from the 2025 Article IV Consultation
The IMF published its concluding statement on 11 March 2025 after the Article IV mission staff visit. The key finding: lowering the OCR to around 3.25% (described as “approximately neutral”) by mid-2025 was appropriate to keep inflation within the target band. The IMF staff explicitly described 3.25% as the neutral rate — the level that neither stimulates nor restricts the economy.
“IMF staff consider lowering the OCR to around 3¼ percent (approximately neutral) by mid-2025 appropriate.”
— IMF Staff, Article IV Consultation, March 2025
IMF staff recommendations on monetary policy
The IMF recommended that the RBNZ continue easing at a pace consistent with bringing inflation sustainably to the midpoint of the target band. It praised the “timely” pace of easing already delivered. The IMF Executive Board formally concluded the 2025 Article IV consultation with New Zealand on 26 May 2025, endorsing the staff analysis.
“The RBNZ started easing in August 2024 and has had its second fastest rate cutting cycle in 25 years.”
— IMF eLibrary summary, May 2025
“The Monetary Policy Committee today voted to lower the OCR by 25 basis points to 3.25 percent.”
— RBNZ Monetary Policy Committee, May 2025
Comparison with RBNZ’s actual actions
The IMF’s recommendation aligned closely with what the RBNZ actually did. By the time the IMF Executive Board met on 26 May, the RBNZ had already cut the OCR to 3.25% — exactly where the IMF staff said it should be. This rare convergence between an international institution’s recommendation and a central bank’s real-time execution adds credibility to the neutral rate estimate of 3.25%.
The upshot: The IMF effectively validated the RBNZ’s playbook. For investors and borrowers, that alignment reduces one source of uncertainty — the “are we cutting too fast or too slow?” debate has an authoritative answer.
The pattern is clear: the IMF’s stamp of approval reinforces the current policy direction, making a sharp reversal unlikely.
Clarity section
Confirmed facts
- Current OCR is 3.25% (as of 28 May 2025). Source: Westpac IQ analysis of RBNZ decision.
- IMF recommended reaching 3.25% by mid-2025. Source: IMF Article IV Staff Statement.
- RBNZ has made five cuts since August 2024. Source: IMF Executive Board Press Release.
- Inflation is within the target band at 2.2%. Source: Stats NZ.
- Next OCR decision date: 27 February 2026. Source: RBNZ calendar.
What’s unclear
- Whether the OCR will drop further below 3.25% in 2026.
- Impact of global economic conditions on future RBNZ decisions.
- Exact timing of when the economy will fully recover from the 2024 recession.
- Whether the neutral rate has permanently shifted lower post-pandemic.
Timeline of OCR and IMF milestones
- — RBNZ begins easing cycle, cuts OCR from 5.5% to 5.25%.
- — OCR cut to 4.75%.
- — OCR cut to 4.25% in Monetary Policy Statement.
- — IMF publishes Article IV concluding statement, recommends OCR around 3.25%.
- — OCR cut to 3.75%.
- — OCR reduced to 3.25%, matching IMF neutral rate estimate.
- — First scheduled OCR announcement of 2026.
Summary: The RBNZ’s five-rate cutting cycle has brought the OCR to 3.25%, earning a formal endorsement from the IMF as appropriate and timely. For New Zealand mortgage holders and business borrowers, the implication is clear: rates are likely to stay at or near this level through 2026, unless the economy deteriorates further — in which case, even lower rates become a real possibility. For New Zealand savers and retirees, the choice is equally stark: lock in term deposits now while rates still offer a modest real return, or accept floating-rate uncertainty in exchange for potential higher yields elsewhere. (Exchange Rate UK to NZ: Live GBP to NZD Rates & 2025 Forecast)
Frequently asked questions
How does the OCR affect mortgage interest rates?
The OCR is the benchmark rate that influences how much banks charge each other for overnight lending. Banks pass OCR changes through to floating mortgage rates almost immediately, while fixed rates respond more to swap rates that themselves track expected future OCR levels.
What is the neutral OCR level in New Zealand?
The IMF’s March 2025 Article IV staff statement described 3.25% as “approximately neutral” — the level that neither stimulates nor restricts the economy.
How many times did the RBNZ cut the OCR in 2025?
As of May 2025, the RBNZ has cut the OCR four times in 2025: February, April, May, and one additional meeting. Combined with one cut in August 2024 and one in November 2024, that totals five cuts from 5.5% to 3.25%.
What did the IMF recommend for New Zealand’s monetary policy?
The IMF recommended lowering the OCR to around 3.25% by mid-2025, describing that level as appropriate to keep inflation within the target band. It praised the RBNZ’s easing pace as timely.
What is the difference between the OCR and the floating mortgage rate?
The OCR is the interest rate the RBNZ charges banks for overnight settlement cash. The floating mortgage rate is the rate banks charge households, typically OCR plus a margin of around 2.5–3.5 percentage points.
When will the next OCR decision be announced?
The next scheduled OCR decision is 27 February 2026. The RBNZ releases decisions four times a year, in February, May, August, and November.
Can the OCR go below 3% again in the future?
Yes, but it would require a significant deterioration in the economic outlook, such as a global recession, a sharp rise in unemployment, or deflationary pressures. The current neutral estimate of 3.25% suggests limited room for further cuts without distress.
How does the OCR compare to interest rates in other developed countries?
New Zealand’s OCR of 3.25% is higher than the US federal funds rate (5.25–5.50%), the European Central Bank’s deposit rate (4.00%), and the Bank of England’s base rate (5.25%), but lower than Australia’s cash rate (4.35%). New Zealand’s relatively high neutral rate reflects a structurally higher inflation path and a more open economy.
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