(MENAFN) New Zealand’s central bank sharply cut its official cash rate (OCR) by 50 basis points to 2.5 percent on Wednesday, aiming to stimulate the country’s faltering economic expansion.

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee noted that annual consumer price inflation remains near the upper limit of its 1-3 percent target range. However, excess capacity in the economy is expected to ease inflation toward the 2 percent midpoint during the first half of 2026, the RBNZ said in a statement.

Economic growth has been subdued through mid-2025, weighed down by supply bottlenecks in certain sectors and global economic policy uncertainties, the central bank added.

“Household consumption is recovering, partly because of lower interest rates, and elevated commodity prices continue to support the primary sector. House prices are flat, and residential and business investment remain weak,” the statement said.

While New Zealand’s trading partners are showing resilient growth fueled by AI-related investments, a slowdown is forecast for 2026.

The committee highlighted risks on both sides: “cautious consumer and business behavior could slow the economic recovery, while higher near-term inflation might be more persistent.”

The RBNZ remains prepared to implement further OCR reductions if necessary to maintain inflation close to the 2 percent target midpoint over the medium term.

Finance Minister Nicola Willis welcomed the move, emphasizing the rate cut’s relief for households and businesses. She described it as positive for “growth, jobs, and investment, which means more money in the hands of families with mortgages.”

“Today's decision means the OCR has now dropped from 5.5 percent to 2.5 percent in just over a year, a significant shift that is taking some of the edge off a very challenging economic recovery,” Willis said.

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