Policymakers signal likely end to easing cycle as economy shows early signs of picking up.

New Zealand’s central bank cut its benchmark official cash rate (OCR) by 25 basis points to 2.25 per cent, its lowest level since mid-2022, but policymakers signalled the likely end to the easing cycle as the economy showed early signs of picking up.

The New Zealand dollar jumped as traders sharply trimmed expectations for any further rate cuts, with the central bank saying the board had debated between holding rates and delivering another cut.

“Future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolve,” the Reserve Bank of New Zealand (RBNZ) said in its accompanying monetary policy statement – the last of the year and the final meeting under governor Christian Hawkesby before Swedish economist Anna Breman takes over in December.

The RBNZ is now forecasting the cash rate will be at 2.20 per cent in the first quarter of 2026 and 2.65 per cent in the fourth quarter of 2027. This is lower than had been expected in August, but the path suggests a hawkish tilt as the door to further easing has been virtually shut.

The New Zealand dollar rallied 0.7 per cent to US$0.5661, the highest in over a week, while two-year interest rate swaps rose 4 basis points to 2.6251 per cent as the market sharply scaled back chances of further rate cuts.

The decision matched a Reuters poll in which all but four of the 36 economists surveyed forecast the RBNZ would cut the cash rate by a quarter point.

The central bank, which surprised markets by slashing rates by a bigger-than-expected 50 basis points in October, has delivered 325 basis points worth of easing since August 2024 to shore up an economy that has contracted in three of the last five quarters.

The statement said risks to the inflation outlook are balanced and noted that while economic activity was weak over mid-2025, it is picking up as lower interest rates are encouraging household spending.