OCR held at 3.25%. Is it time to revisit the Reserve Bank’s mandate?

Over the past 12 months, the Reserve Bank has gradually lowered the Official Cash Rate (OCR) from 5.50% to 3.25%. While that’s a solid drop, the pace of cuts has been cautious.

With inflation falling and economic pressures mounting, many are asking:

Why has the RBNZ been so cautious on rate cuts?

Part of the answer may lie in a quiet but significant change made late last year.

In 2018, the Labour Government introduced a dual mandate for the Reserve Bank, requiring it to target both price stability and maximum sustainable employment. This was similar to what central banks like the US Federal Reserve and Australia’s RBA use. It provided a broader lens designed to weigh the overall health of the economy, not just inflation.

But in December 2023, that changed.

The new government quietly removed the employment objective, narrowing the RBNZ’s focus back to a single mandate: inflation control.

It didn’t make many headlines at the time, but now the impact is becoming clearer.

With inflation still hovering near the top of the Bank’s 1 to 3 percent target range, the RBNZ is treading carefully.

The OCR has come down, but not dramatically, and economists like Jarrod Kerr and Tony Alexander suggest we’re now near the bottom of this rate cycle. If you’ve been holding out for much lower mortgage rates, you might be out of luck.

Meanwhile, most other advanced economies, including the US, Australia, Canada, and the UK, still operate under dual or even triple mandates. These frameworks allow them to balance inflation control with economic growth and employment. At present, New Zealand is one of the few OECD (Organisation for Economic Co-operation and Development) nations with a purely inflation-focused central bank.

So, is it time to revisit the RBNZ’s mandate again?

Maybe. It’s a fair question, especially when rate decisions have such a direct impact on household budgets, small businesses, and industries like construction.

What now for mortgage rates?

As Kiwibank’s Jarrod Kerr recently put it, “We’re getting close to the bottom.” With many banks now offering 1, 2, and 3-year fixed rates below 5 percent, it could be a smart time to refix, especially if your rate is rolling off one of the 6.5 to 7 percent deals from a year or two ago.

We’re seeing big savings flow through to our clients’ monthly budgets, giving households some much-needed breathing room. That money doesn’t just ease pressure at home, it filters through to the economy, particularly small businesses, and the construction sector, which has been doing it tough.

Last year, it was all about “Survive to ’25.”
This year, it might be time to “Get Back in the Mix for ’26.”

If your fixed rate is coming up or you want to explore your options, get in touch. We’re here to help.