RBNZ: Dovish, but not diving – Standard Chartered

RBNZ cuts 25bps to 3%, two votes for 50bps; the OCR track now troughs at 2.55% in Q1-2026. Domestic weakness drove the RBNZ cut, as Q2 GDP likely contracted and the output gap is widening. Inflation expected at the top of the target band through end-2025, delaying 2% convergence, Standard Chartered's economists Bader Al Sarraf and Nicholas Chia report.

A soft path with a hard floor

"The Reserve Bank of New Zealand (RBNZ) delivered a widely expected 25bps cash rate cut to 3.00% in a 4-2 split decision, with two members arguing for a larger 50bps cut. The accompanying August Monetary Policy Statement (MPS) was distinctly dovish. The published Official Cash Rate (OCR) track was lowered meaningfully, now troughing at 2.55% in Q1-2026 – 30bps beneath May’s profile and at the bottom of the RBNZ’s estimated neutral range. The Committee justified the cut on 'broadly balanced' risks but stressed that lower rates would provide 'sufficient signalling effects' to reinforce the easing cycle."  

"The RBNZ justified the cut on the weaker growth backdrop. It expects Q2 GDP to have contracted (-0.3% q/q) with only a tepid rebound pencilled in for Q3 (+0.3% q/q). The output gap is now seen wider at -1.8% of potential by September, 0.2ppt lower than May forecasts, reflecting spare capacity, sluggish housing and consumption, and uneven monetary transmission. The RBNZ acknowledged financial conditions are already easing but argued that more support is needed to underpin recovery."

"The RBNZ’s easing bias stands in contrast to the less benign inflation dynamics. It expects headline CPI to rise to 3% in Q3 and remain near the top of the band through H1 2026, with convergence to the 2% mid-point delayed until 2027. With the OCR track implying another 43bps of easing by year-end, the October and November meetings are firmly 'live', though the MPC reiterated its data-dependent stance. We retain our base case that 3% marks the terminal rate for this cycle, with the risk of one additional 25bps cut in November."