In our recent discussion with Kiwibank Chief Economist Jarrod Kerr, we unpacked the latest OCR announcement and what it means for New Zealand’s economy in 2025. While rates have dropped significantly, many Kiwis are still feeling the pinch – so what’s really going on?
Why Wasn’t The OCR Cut Further?
Jarrod Kerr described the Reserve Bank’s decision to pause at 3.25% as “boring” – a simple wait-and-see approach. While the OCR has fallen sharply from 5.5%, Kerr argued that a further cut to around 2.5% is needed to stimulate the economy and build momentum. Businesses remain cautious, consumers are still holding back on discretionary spending, and despite some optimism for 2026, growth remains subdued.
Inflation And Cost of Living Pressures
The RBNZ’s decision not to cut highlighted that inflation remains a key concern, driven by rising food prices, council rates, and energy costs. Although the Reserve Bank expects inflation to drop back towards 2% within six months, households are still under pressure. Lower-income Kiwis feel the impact more acutely, spending a larger proportion of their income on essentials. This cost of living crisis has persisted for years, making relief through monetary policy even more critical.
Business Lending, Infrastructure, And Regional Differences
Kerr noted that Kiwibank’s business lending has grown nine times faster than the overall market, indicating some sectors are investing despite uncertainty. However, he highlighted stark differences between regions – only eight out of 250 people at a Wellington conference were planning to expand, compared to nearly half in Christchurch. Stronger infrastructure, such as Christchurch’s post-quake rebuild, is supporting confidence and economic activity there.
Global Outlook And The Road Ahead
International uncertainty also influences New Zealand’s economic prospects. Trade tensions, tariffs, and geopolitical risks like rising oil prices are expected to lower global growth, which could flow through to the local economy. Despite these headwinds, Kerr remains optimistic because monetary policy is working its way through the economy, interest rates are lower than last year, and Kiwibank is seeing strong lending activity. He expects better growth rates this year compared to last year, with further improvement into 2026.
Key Takeaways
- The OCR has dropped from 5.5% to 3.25% over the past year, but experts argue it needs to go lower to boost the economy.
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Inflation is expected to ease, but households still face high food, energy, and council costs.
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Regional differences are stark – Christchurch shows strong confidence while Wellington remains cautious.
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Global risks, including trade tariffs and oil prices, could dampen growth further.
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Long-term infrastructure investment is critical to lift productivity and economic resilience.
Next Steps:
If this weeks OCR announcement has you feeling uncertain about your mortgage, get in touch with Lighthouse Mortgages for tailored advice on your current structure, new properties, or first home purchase.
If you’d like to learn more, check out these other episodes below.
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Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
