RBNZ Preview: Why a 50bps Cut is on the Table

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The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its latest interest rate decision, called the Monetary Policy Review (MPR), this Wednesday, October 8th (at 2:00 PM New Zealand time).

The meeting comes against a backdrop of disappointing data which included a contraction in economic activity. As a result, market participants cannot agree on how much the RBNZ will cut the main interest rate. Some predict a small cut of 25 basis points (a 0.25% drop), while others are forecasting a large, aggressive cut of 50 basis points (a 0.50% drop) to try and quickly reverse the negative economic trend.

Source: LSEG

As you can see from the LSEG data above, markets are split. 45.8% favor a 25 bps rate cut while 54.2% are favoring a 50 bps rate cut which leaves market participants with a lot of questions.

The Potential Decision: 25bp vs. 50bp?

Heading into the meeting it's clear that a cut will materialize but the split at this stage on whether to cut by 25 or 50 bps remains fairly even.

A case to support a 50 bps cut?

Those who are itching for a 50 bps rate cut will point to the severe macroeconomic setback recorded in the second quarter of the year. The June quarter GDP outcome registered a contraction of −0.9% QoQ, a figure that was 0.6 percentage points weaker than the RBNZ had forecast.

While expectations for the September quarter GDP suggest modest positive growth, possibly exceeding the RBNZ's August MPS forecast of 0.3% QoQ, this increase is deemed insufficient to counteract the magnitude of the Q2 error.

The idea is that a 50 bps cut would boost the confidence and activity ahead of the important Christmas and Summer trading period.

A case for a 25 bps cut?

The case for a more conventional 25 bps cut rests in the fact that Q3 data on inflation and employment will not be released ahead of this meeting. In simple terminology, the RBNZ would be ‘cutting in the dark’ as some have called it.

The Weak Q2 Data is Driving the Uncertainty

Source: LSEG, Table Created by Gemini

Q3 Economic Indicators and Monetary Policy Context

Despite the compelling need for stimulus, monthly price data suggests that the Consumer Price Index (CPI) will sit close to the top of the RBNZ’s 1–3% target range in the September quarter, aligning with the expected 3%-plus print in Q3 and Q4.

The MPC, however, is expected to look through this headline inflation, as the ample excess capacity created by weak economic activity is deemed sufficient to moderate inflation toward the 2% target over the medium term.

Labor market indicators confirm this weakness: filled jobs data is tracking consistent with the RBNZ’s August forecast of zero growth in Q3, which is likely to result in a further modest rise in the unemployment rate.

Furthermore, job advertisements remain exceptionally low, confirming persistent slack. This suggests that the weakness observed in the urban economies and the services sector is sufficiently critical to override inflation concerns and demands proactive intervention focused on domestic activity.

The MPC dynamics also favor aggressive easing. The most hawkish member has exited the committee, and the Governor is expected to lend greater weight to the remaining dovish members. This shift increases the likelihood that the MPC will adopt the aggressive "circuit breaking" stance.

Market and NZD Impact

Impact of 50 bps Cut (Dovish Surprise): While a 50bp cut would likely cause short-term pressure on the Kiwi dollar, that easing is now so well priced in that the downside risks for the NZD are reduced into year-end.

Impact of a 25 bps Cut (Hawkish Surprise): a 25bp cut with a hint of another 25bp in November—remains the key threat to market stability. It would strongly signal that the committee sees less need for urgent action. This, in turn, would cause interest rates to suddenly and undesirably increase across the bond market, as traders would quickly cancel their current aggressive bets that the central bank will keep cutting rates fast.

NZD/USD Daily Chart, October 7, 2025

Source: TradingView.Com (click image to enlarge).

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