Calls for hold on OCR strengthen as GDP comes in higher than expected

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Economists expect the OCR to be kept on hold at its meeting next month as GDP came in at 0.8% for the first quarter of the year – higher than most forecasters had predicted.

Thursday, June 19th 2025, 12:17PM

by Sally Lindsay

Economists expect the OCR to be kept on hold at its meeting next month as GDP came in at 0.8% for the first quarter of the year – higher than most forecasters had predicted.

The RBNZ’s own forecast was 0.4% but in the past couple of weeks that figure had been upped to 0.7% by most economic forecasters.

Stats NZ figures show GDP activity increased in primary, goods-producing and services industries, but dropped particularly in arts and recreation services, information, media and telecommunications and wholesale trade.

The biggest rises were in business services and manufacturing, each up 2.4%.  The manufacturing boost was led by an increase in machinery and equipment production, while the rise in business services was through computer design and related services.

A 1.9% drop in art and recreation services was driven by gambling, heritage and artistic activities. 

The figures show gross national disposable income rose 0.5% over the quarter.

Earlier this month Westpac had upgraded its GDP forecast to 0.7% saying it meant a strong case for the OCR to be left unchanged at the July review.

Westpac senior economist Michael Gordon says the bank was encouraged by the increasing breadth of the GDP upturn coming from lower interest rates doing their work and the fact New Zealand’s interest rate easing cycle was further advanced than most other developed economies.

Kiwibank economists say the RBNZ needs to keep cutting as the economy continues to crawl out of a “deep, deep hole” and it needs a 25bp cut either in July or August and another cut by the end of the year. 

Although the RBNZ may pause the OCR in July at 3.25%, Kiwibank expects the economic data to evolve in a way that demands more rate relief.

They were sticking with a 2.5% forecast end rate, even as the path toward it was “shrouded in uncertainty”, the economists say.

RBNZ acting governor Christian Hawkesby has indicated a July cut is not a certainty and decisions will be data dependent. The latest GDP figures have not alleviated that headache.

The NZIER shadow board says the OCR should be kept at its existing level next month as inflation and inflation expectations and heightened global uncertainties warrant the need for caution by the RBNZ.

The board says it is appropriate for the RBNZ to take a wait-and-see approach when assessing future OCR moves.

Tags: GDP OCR OCR forecasts

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