The Reserve Bank of New Zealand meets on Wednesday, 8 October 2025, with markets divided between a 25- and 50-basis-point cut to the Official Cash Rate (OCR). 

The New Zealand economy has slipped into contraction despite sticky inflation

New Zealand’s economy recorded negative growth in the second quarter, reflecting weak consumer demand and fading business investment. Even so, core inflation remains just above the RBNZ’s 1–3 percent target band, sitting at 3.2 percent on the latest reading. 

At its August meeting, the central bank highlighted evidence that non-tradables inflation is trending lower, reinforcing its view that spare capacity is building and inflation will continue to ease. The RBNZ’s own forecasts pointed to an OCR of around 2.5 percent by the end of 2026, underscoring expectations for a prolonged easing cycle as inflation drifts back toward target.

(Source: RBNZ)

Traders are divided over whether the RBNZ will move by 25 or 50 basis points

Money-market pricing currently implies around 36 basis points of cuts, equivalent to a 44 percent probability of a half-point move. That split reflects uncertainty over whether the RBNZ will front-load policy easing to get ahead of deteriorating growth or opt for a steadier pace to guard against inflation risks. The forward guidance will therefore be crucial for confirming whether policymakers still see rates moving well into the 2 percent handle through 2026.

With growth faltering, inflation easing, and monetary conditions still restrictive, the RBNZ faces a balancing act. Either way, markets expect the bank to stay on an easing path well into next year as it seeks to revive a stagnating economy.

Because of the split pricing, the NZD/USD confronts significant two-way risks: all else equal, a 50 basis point move would likely lead to a swift drop in the pair, while a 25 basis point cut would lead to a rally. A confluence of short-term resistance levels appears between 0.5840 and 0.5845. Meanwhile, the pair may find support from an upward sloping trendline which if broken may invite further downside to the pair’s recent lower-low at roughly 0.5750.

(Source: Trading View)
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