Predictions for big OCR drop next month

Westpac and Kiwibank are predicting a 0.50% OCR drop next month after the economy “slammed into reverse” in the second quarter of this year.

Thursday, September 18th 2025, 7:44PM

Westpac is going even further and forecasting another 0.25% RBNZ cut in November taking the OCR down to a stimulatory 2.25%.

Both banks had expected a 0.25% cut in both October and November but have lifted their forecasts after the economy shrank by a deep 0.9% over the June quarter. On an annual basis, the economy contracted 0.6%.

Weakness was broad-based, with 10 of the 16 measured industries recording a decline in output.

Kiwibank chief economist Jarrod Kerr says the contraction proves that once again the RBNZ finds itself playing catch up to the deteriorating economy, rather than leading the country out. “Enough is enough. Where monetary policy settings are today are clearly not enough.”

Most forecasters were expecting a much shallower 0.3% GDP decline. “What we got was uglier. It effectively wipes out all the gains made since the start of the year,” he says.

“And as usual, things are even bleaker on a per capita basis. Economic growth on a per person basis contracted 1.1% over the quarter alone and is down 1.3% from June last year.”

Kiwibank is advocating a 0.50% move next month. “Get it done. Get to 2.5% asap,” Kerr says. “No more time for mucking around. It’s time for leadership out of the RBNZ.”

Westpac chief economist Kelly Eckhold says just last week RBNZ governor Christian Hawkesby said at the Finance Services Council conference: “While our central projection for the OCR is to fall to around 2.50% by the end of the year, that could occur faster or slower depending on how the economic recovery evolves.”

He says the fact the GDP data has surprised significantly to the downside means the RBNZ monetary policy committee is likely to judge there is too much excess capacity in the economy.

“The case for accelerated easing will look strong – especially to two of the four committee members who were arguing for a circuit-breaking 0.50% cut at last month’s meeting.

“The recent flow of weak, uninspiring economic data could very well be the water that sees the dissenting view grow to become the consensus view.”

Once a 2.5%, rate is delivered, Kerr says the debate can start about a further move to 2%. “It’s hopefully not required, but it will quell those calling for no more cuts from 3%. It’s simply out of touch.”

Westpac says if there is a drop to 2.25% in November, it will move the OCR into stimulatory territory and this will have implications for the 2026 outlook even though recent trends are not suggesting the economy is recovering particularly rapidly from the Q2 nadir.

Eckhold says the bank is acutely aware that indicators could change quickly and so will not be making any fast judgments on the implications for growth next year and the timing of when the OCR might start to rise again.

The forecast is for the OCR to begin increasing after next year’s general. This could come sooner, he says.

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