The Reserve Bank has lowered the Official Cash Rate (OCR) to 2.25 percent, citing easing inflation pressures and spare capacity in the economy, while forecasting inflation will fall to around 2 percent by mid-2026.
Annual consumers price inflation rose to 3 percent in the September quarter, sitting at the top of the Reserve Bank’s target band, but core and non-tradables inflation continue to decline, and falling household inflation expectations are expected to support moderation.
Economic activity weakened through mid-2025, with GDP dropping 0.9 percent in the June quarter, but the Bank said this overstated the slowdown due to temporary seasonal factors. Lower interest rates, a stabilising labour market and a weaker exchange rate are now lifting household spending and export earnings, with early indicators pointing to modest GDP growth in the September quarter. Job vacancies and hours worked have begun to rise, suggesting a gradual improvement in labour market conditions.
Financial conditions have eased as mortgage rates fall, with the average mortgage yield dropping to 5.4 percent and expected to fall further as more loans reprice. While rural incomes have been supported by strong commodity prices, domestic-focused sectors remain subdued, and unemployment and underutilisation have risen. The Bank said risks to the inflation outlook are balanced, warning that household caution could slow the recovery, while stronger demand and faster house price growth could keep inflation higher for longer.
The Monetary Policy Committee voted 5-1 to cut the OCR, arguing that maintaining easing to date would support an enduring recovery in output and employment. Future rate decisions will depend on how inflation and economic conditions evolve.
The only place inflation is easing is in their forecast. Just swap the head of the Reserve bank and the outlook improves….Trumpism 101