NZ Interest Rates: Q4 Market Outlook

- The economic focus in New Zealand has shifted from fighting inflation to supporting growth - Recent growth data has been poor, with the economy contracting in 3 of the last 5 quarters - The economy shrank by 0.9% in Q2 vs the RBNZ’s estimate of just 0.3% - In the view of RaboResearch, poor growth and risks of rising unemployment mean that the RBNZ will need to deliver more cuts to the OCR than we previously expected - We now forecast cuts of 50bps in October and 25bps in November to take the OCR to 2.25% - We see potential for a further 25bp cut in Q1 2026 if growth does not stabilise close to trend - We expect further falls in 1-5 year bond yields and swap rates, but expect 10-year bond yields to remain relatively elevated