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Investing.com - Bank of America has revised its forecast for the Reserve Bank of New Zealand’s Official Cash Rate (OCR), now expecting a terminal rate of 1.75% by mid-2026, significantly below market consensus.
The bank predicts the RBNZ will cut rates by 25 basis points on November 26, followed by an additional 50 basis points of cuts in the first half of 2026. This projected path sits approximately 35 basis points below both consensus estimates and current market pricing, and would place the OCR 125 basis points below the RBNZ’s central estimate of the neutral rate.
Bank of America notes this terminal rate aligns with historical easing cycles, where the OCR has typically fallen 100-150 basis points below neutral. The forecast also reflects Taylor rule calculations that suggest an OCR below 2% is appropriate given New Zealand’s persistently negative output gap.
The bank has simultaneously downgraded its New Zealand dollar outlook, projecting it will be the second-worst performing G10 currency through the end of 2026, behind only the Swiss franc. Specifically, NZD/USD is forecast to reach a low of 0.55 in the first half of 2026 before beginning a gradual recovery.
For the AUD/NZD pair, Bank of America maintains its 1.20 target despite projecting initial weakness in the first quarter of 2026 as AUD/USD potentially drops to 0.63. The bank expects the cross to rebound sharply from the second quarter onward as interest rate differentials become the primary driver of the currency pair.
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