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The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25 basis points to 3.0% at its August 20 meeting, in line with market expectations. This marked the third consecutive reduction in 2025, as policymakers responded to weak domestic demand, spare capacity, and easing inflation pressures. Annual CPI inflation stood at 2.7% in Q2, near the top of the RBNZ’s 1–3% target band, but is projected to return to the 2% midpoint by mid-2026.

Core inflation — the RBNZ’s preferred gauge that excludes volatile components — has continued to decline, reflecting weaker wage growth and subdued housing demand. The unemployment rate rose to 5.2% in the June quarter, highlighting labor market softness and persistent economic headwinds.

The decision drove a dovish market response, but economists cautioned against over-interpreting a single policy move. Analysts noted that the policy outlook will depend on a wider set of data, with two more rate decisions due before year-end. Sticky service prices, external tariff risks, and global uncertainty could keep inflation pressures alive despite easing domestic demand.

NZDUSD Daily Chart

The New Zealand Dollar (NZD) weakened against the US Dollar (USD) on Wednesday, with NZD/USD falling below 0.5900 after the rate cut reinforced dovish expectations for the RBNZ. The next support level on the daily chart is seen around 0.5820.

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