- Decision
- Lower
- Rate change
- 25 bps
- official cash rate
- 3.25%
New Zealand’s Monetary Policy Committee cut the Official Cash Rate (OCR) by 25 bp to 3.25 percent, judging that a pick-up in headline CPI inflation to 2.5 percent y/y in Q1 and firmer household and business inflation expectations are offset by falling core inflation and lingering spare productive capacity, leaving price growth on track to return to the 2 percent midpoint of the 1–3 percent target band over the medium term. After trimming the rate by 50 bp in February and 25 bp in April to 3.50 percent, the latest move extends this year’s easing cycle. The statement offers no new operational guidance beyond the lower OCR. Policymakers noted the domestic economy is recovering from earlier contraction, helped by high commodity prices and previous rate cuts, but warned that weaker global growth stemming from rising tariffs and policy uncertainty abroad could temper the rebound and dampen medium-term inflation pressures. With inflation currently within target, the Committee stressed it remains ready to adjust settings further as needed to maintain medium-term price stability.
Rate evolution
Over the period, the Reserve Bank of New Zealand lowered the Official Cash Rate (OCR) by a net 50 basis points from 3.25 percent to 2.75 percent, cutting through late 2025 after a July pause, holding in early 2026, then raising the rate in July and September 2026. Early easing reflected declining core inflation, spare capacity, weak demand, and the view that tariffs and global policy uncertainty would restrain growth and medium-term inflation, even as headline inflation neared the top of the 1 to 3 percent band on food and administered prices. As the recovery stalled, the Committee accelerated easing in October before a smaller November cut, while judging risks as broadly balanced between persistent near-term price pressures and weak activity.
The Committee then kept the OCR at 2.25 percent as Middle East supply disruptions lifted fuel and petrochemical costs, raised near-term inflation and weakened activity, before increasing it by 25 basis points to 2.50 percent on July 8, 2026, as activity was expected to strengthen and persistent non-tradables inflation indicated that further stimulus removal would likely be required. On September 2, it raised the OCR by another 25 basis points to 2.75 percent after inflation reached 4.1 percent in the June quarter, largely because of higher fuel and related prices, while judging that core inflation, expected wage growth and inflation expectations remained consistent with inflation returning to target. The Committee said gradually removing monetary stimulus would reduce the risk of larger increases later, and judged that the OCR may need to rise further if the recovery strengthens and price-setting keeps inflation elevated.