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The Reserve Bank has cut the Official Cash Rate (OCR) by 50 basis points in its February Monetary Policy Statement.

The move takes the OCR from 4.25% to 3.75%, and retail banks have moved quickly to cut some home loan and other rates.

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The Reserve Bank (RBNZ) this afternoon said economic activity was still subdued.

“With spare productive capacity, domestic inflation pressures continue to ease.”

Economic growth was expected to recover during 2025, the RBNZ said.

“Lower interest rates will encourage spending, although elevated global economic uncertainty is expected to weigh on business investment decisions,” it said in today’s Monetary Policy Statement.

“Higher prices for some of our key commodities and a lower exchange rate will increase export revenues. Employment growth is expected to pick up in the second half of the year as the domestic economy recovers.”

It said consumer price inflation in New Zealand was expected to be volatile in the near term, due to a lower exchange rate and higher petrol prices.

“The net effect of future changes in trade policy on inflation in New Zealand is currently unclear. Nevertheless, the committee is well placed to maintain price stability over the medium term.”

POLITICAL REACTION

In Parliament, the Government was quick to some credit for the cut.

Finance Minister Nicola Willis answered questions from her own MPs, praising today’s cut and anticipated future cuts and their “direct impact on New Zealand families”.

Labour was quick to argue the forecast cuts should be blamed on the Government, which has squeezed inflation out of the economy by slowing growth and raising unemployment.

As Willis praised the projected cuts, Labour leader Chris Hipkins interjected the cuts were needed because “she [Willis] is tanking the economy”.

As Willis acknowledged there were risks to the economic outlook, Hipkins interjected: “she’s one of them”.

BANKS MOVE

Kiwibank, ASB and The Co-operative Bank all announced changes to mortgage and term-deposit rates at the same time at the OCR drop.

ASB sliced 50 basis points off its variable and business loan rates and also trimmed the same amount off its savings and on call rates.

ASB’s variable home loan rate will drop to 6.89% as of Friday for new customers, and February 28 for existing customers.

And its ”Back my Build” rate available to those who build a new home from scratch, or buy a home-and-land package, will be dropped to 4.44%.

Kiwibank’s variable home loan rate will fall from 7.25% to 6.75% as of Monday for new lending, and on March 10 for existing loans.

EARLIER TODAY

While economists viewed a 50-basis-point cut as highly likely, they were less certain about how far it will be cut in the months ahead.

Much of the focus of today’s announcement will be on the RBNZ’s new forecasts and its projected track for the rate.

The bank will have to weigh the ongoing sluggishness of the economy against concerns about the potential for inflation to reignite.

“In our opinion, it should publish a quicker decline in rates than it did back in November,” BNZ head of research Stephen Toplis said.

“Our view is that the cash rate should be cut 25 basis points per meeting, following the 50 in February, until such time that the bank thinks it’s done enough.”

That could mean the OCR falls to 2.75%, Toplis said.

But others are more cautious.

ANZ economists are picking just one more 25-basis-point cut – taking the rate to 3.5%.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up for his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.