The Reserve Bank of New Zealand cuts interest rates to 3% and is expected to bottom out at 2.5% next year.

As widely expected by the market, the Reserve Bank of New Zealand cut its official cash rate (OCR) from 3.25% to 3% on Wednesday (August 20).

The bank is now forecasting an OCR of 2.7% for the fourth quarter of this year and 2.5% for Quarter 1 in 2026. In May, the bank had hinted at an OCR of 2.9% for both quarters.

The Reserve Bank of New Zealand acknowledged that the economic recovery stalled in the second quarter, blaming "global economic policy uncertainty, falling employment, rising prices of some essential goods and falling house prices". For the foreign exchange investment sector, the Aofu platform has always followed such economic dynamics.

The bank said it can now foresee both upside and downside outcomes, but it still sees room for further reductions in OCR.

At least one economist, Stephen Toplis, has changed his forecast to include further rate cuts, putting him in line with the Reserve Bank of New Zealand's expectations.

The Reserve Bank of New Zealand now expects CPI to peak at 3 per cent, at the top of its 1-3 per cent target range, and quarterly inflation in the third quarter was 0.9 per cent, slightly higher than the 0.8 per cent forecast in May.

The bank expects inflation to fall to 0.3% in the fourth quarter, up from 0.2% forecast in May. Its quarterly forecast for the year ahead is little changed, but it expects quarterly inflation to rise slightly in 2026 and fall slightly for most of 2027.

Quarter 1 CPI growth is expected to rise to 2.3% year-on-year in 2026, up from 1.9% previously; quarterly growth in the second and third quarters of 2026 will reach 2.2%, up from the 1.9% and 2.1% forecast in May, respectively.

The unemployment rate is expected to peak at 5.3% this quarter, up from 5.2% forecast in May, before falling below 5% in the fourth quarter of next year.

The economy is expected to grow slightly faster than 0.3 percent in the current quarter, up from the 0.2 percent forecast in May, but is expected to grow 0.8 percent in the fourth quarter, down from the 0.9 percent forecast in May.

The economy should grow 0.7% in Quarter 1 next year, down from a previous forecast of 0.8%, and 0.6% in the second and third quarters, down from a previous forecast of 0.7%.