The Reserve Bank of New Zealand lowered its official cash rate by 25 bps to 2.25% at its final meeting of the year, a widely expected move that brought borrowing costs to their lowest level since mid-2022. Policymakers said the decision reflected significant spare capacity in the economy and easing inflation pressures. Annual CPI rose to the top of the 1–3% target band in Q3, but core and non-tradables inflation continue to moderate, supporting expectations for inflation to return to 2% by mid-2026. Economic activity remained weak through mid-2025, with GDP contracting in Q2, though near-term indicators suggest a gradual recovery. The central bank noted balanced risks, cautioning that weak household and business confidence could restrain the recovery, while stronger housing or export-driven demand could keep inflation more persistent. The MPC said future moves depend on the economic and inflation outlook.
