Survey heads in right direction for OCR cut
The RBNZ’s most watched barometer of inflation expectations has dropped after increasing sharply in February.
Monday, August 11th 2025, 9:32AM
by Sally Lindsay
As the central bank heads toward another OCR decision next week, the two-year expectation for future inflation dropped to 2.28% from 2.29% in the last quarter, which was up from 2.06% in the February survey.
This time frame is the one the RBNZ watches most closely as it mulls whether to lower or raise the OCR.
It is heavily predicted by economists to lower the OCR to 3% next week and another 0.25% before the end of the year as economic indicators soften and inflation remains at the top end of its 1-3% target.
The survey of 40 business leaders and professional forecasters by Research New Zealand on behalf of the RBNZ shows one-year inflation expectations declined to 2.37% from 2.41% while five-year-ahead expectations increased to 2.26% from 2.18% in the last quarter. The ten-year-ahead inflation expectations were unchanged at 2.15%.
On average, survey respondents expect the OCR to be 3.02% by the end of the September quarter and decline further to 2.86% by the end of the June quarter next year.
On the housing front prices are expected to increase across all time horizons. Expectations for house price inflation one year ahead increased to 2.87% from 2.78%, while two years ahead expectations for higher prices have increased to 3.86% from 3.52%.
Expectations of whether people are in employment dropped across all time horizons. The unemployment rate one year ahead declined to 5.02% from 5.19%, two years ahead, it dropped to 4.65% from 4.77%.
Last week’s unemployment figures showed a slight nudge upwards to 5.2% and economists pointed to the weakness in the data that will have a bearing on the RBNZ’s OCR decision.
BNZ research head Stephen Toplis says the unequivocally weak data should put a seal on a RBNZ OCR cut and increase the odds of one more after that.
Kiwibank is predicting the RBNZ will be forced to cut interest rates more than either it or the market currently expects, due to weaker economic data both here and overseas.
Market traders are factoring in more cuts as inflation is tame, the labour market softens and the impact of tariffs is likely to lower demand, growth and interest rates.
In other survey results annual wage inflation expectations for one year ahead in the survey dropped by 11 basis points from 2.72% to 2.61%. Two years ahead and it increased to 2.88% from 2.80%.
Two other surveys will also give the RBNZ pause for thought before next week’s decision – its revamped Household Expectations Survey due out on Thursday and its second quarterly Tara-a-Umanga Business Expectations Survey which is due out two days before the OCR decision.
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