(Bloomberg) -- New Zealand’s Treasury Department expects the Reserve Bank to cut the Official Cash Rate to below 3% in 2026, its economic forecasts show.
In its half-year economic update published Tuesday in Wellington, Treasury projects the 90-day interest rate will fall to a low of 2.9% by the fourth quarter of 2026, implying the OCR will drop to 2.75%.
That’s lower than the RBNZ’s forecast track for the OCR and would take the benchmark to a level considered to be stimulatory. The RBNZ estimates the neutral OCR level — at which borrowing costs neither stimulate nor restrict the economy — is around 3%.
Last month, the central bank cut the OCR to 4.25% and projected it will fall to around 3.5% by the end of 2025 and approach 3% a year later, adding that it didn’t see the need to go any lower than that.
Treasury’s projections show economic growth accelerating next year, aided by lower borrowing costs. It forecasts gross domestic product will increase 3.3% in the 12 months through June 2026 and 2.9% the following year.
By comparison, the RBNZ sees 2.3% growth in fiscal 2026 and 2.4% in fiscal 2027.
“Lower interest rates will stimulate demand in time as lower debt-servicing costs for mortgage holders and borrowers in general encourage both household spending and business investment,” Treasury said in its report.
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