RBNZ October 2025: Post-Decision Analysis

THE DECISION: OCR cut 50bp to 2.5% | Forward guidance: "remains open to further reductions"

The RBNZ delivered a larger-than-consensus cut, choosing aggressive easing over gradualism. This matched our Dovish Scenario 1 prediction (25% probability). Here's how the actual statement compared to our preview analysis:

1. Accuracy Check: What We Got Right

The statement provides remarkable detail about the Committee's deliberations, confirming the exact debate we anticipated: gradual 25bp approach vs. front-loaded 50bp move.

2. Which Scenario Occurred?

Dovish Scenario 1: 50bp Cut + Continued Easing Signal

Our Prediction: 25% probability

Market Consensus: 55% expected 25bp, 40% expected 50bp

Reality: RBNZ chose the aggressive path

Why This Scenario Won:

• "Prolonged spare capacity" - Committee emphasized downside risks to activity

• "Downside risk to medium-term activity and inflation" - worried about undershooting

• "Excess precaution by households and businesses" - exact concern we identified

• "Clear signal that supports consumption and investment" - aggressive cut as stimulus signal

Interestingly, the RBNZ's reasoning closely mirrors our "Dovish Scenario 1" logic, not the "50bp + pause" variant. The statement explicitly signals openness to continued easing, not a pause to assess.

3. Key Statement Analysis

On GDP Weakness:

Our Preview Said:

"GDP contracted three times worse than RBNZ projected (-0.9% vs -0.3%)"

RBNZ Statement Said:

"Contraction in GDP in Q2 2025 was considerably larger than expected"

But added nuance: "Unusually large seasonal balancing item... expected to be reversed"

Key Insight: The RBNZ partially downplayed the GDP shock by citing technical factors (seasonal adjustment, industry-specific supply constraints). However, they still cut 50bp, suggesting they're erring on the side of caution.

On Inflation:

Our Preview Said:

"Inflation clearly temporary - food/admin prices driving spike, core declining"

RBNZ Statement Said:

"Headline inflation reflects large increases in administered prices, food prices... Excluding administered prices, non-tradables inflation has continued to decline"

✓ Perfect match

On Forward Guidance:

Our Dovish Scenario 1 Predicted:

"The Committee expects further reductions in the OCR will be needed"

Actual Statement:

"The Committee remains open to further reductions in the OCR as required"

Assessment: Slightly softer than our predicted language ("open to" vs "expects"), but still clearly dovish. Keeps door open for November cut.

The Committee's deliberation section is particularly revealing - it shows the exact 25bp vs 50bp debate we anticipated, with the 50bp camp winning on concerns about "prolonged spare capacity" and "excess precaution."

4. Likely Market Implications

Forward Pricing Implications:

• November Meeting: Likely 25bp cut (possibly on hold if Sep Q data surprises positive)

• Terminal Rate: Now pricing ~2.0% to 2.25% (lower than August MPS projection of 2.6%)

• Total Easing: 350bp from peak (5.5% → 2.5%), with potentially 25-50bp more to come

The "remains open to further reductions" language suggests the easing cycle isn't done. With the OCR at 2.5%, the RBNZ is approaching neutral but signaling they may need to go below neutral if weakness persists.

5. What to Watch Next

The RBNZ's decision framework is now clear. For the November 27 meeting, watch these data points:

Given the Committee's emphasis on "prolonged spare capacity" and "excess precaution," they'll be watching confidence indicators and employment data closely. A weak Sep Q labour report would strongly suggest another 25bp cut in November.

6. Bottom Line

1. The RBNZ chose front-loading over gradualism

Getting to 2.5% in one meeting (vs two 25bp cuts) reflects concern about economic momentum, not just inflation.

2. The easing cycle is NOT over

"Remains open to further reductions" signals at least one more cut likely (November or February).

3. The Committee is more worried about undershooting than overshooting

Their revealed preference: risk erring on the side of too much easing rather than too little, given "prolonged spare capacity."

4. Our preview identified the right scenario, but underweighted it

Dovish Scenario 1 played out exactly as predicted (50bp + continued easing).

5. Watch Sep Q CPI (Oct 16) for November decision clues

If CPI comes in at 2.9% or below, strengthens case for another cut. If 3.1%+, RBNZ may pause to reassess.

The Surprise Factor

While markets priced 40% for 50bp, the real surprise is the dovish forward guidance. The RBNZ didn't pair the 50bp cut with "pause and assess" language. Instead, they explicitly kept the door open for more cuts, signaling terminal rate expectations should move lower.

Translation: We're not just catching up to neutral—we might need to go below neutral if spare capacity persists.