- Decision
- Maintain
- Rate change
- 0 bps
- official cash rate
- 2.25%
The Reserve Bank of New Zealand’s Monetary Policy Committee kept the Official Cash Rate (OCR) unchanged at 2.25 percent, judging that the Middle East conflict-driven spike in oil prices will lift near-term inflation while simultaneously damping New Zealand’s nascent economic recovery and leaving sizeable spare capacity. The decision follows a cumulative 75 bp easing between August and November 2025, after which the OCR was held steady in February. Since the conflict began, domestic wholesale rates have risen, fixed-term mortgage costs have edged up about 20 bp and the New Zealand dollar has depreciated on a trade-weighted basis, tightening overall financial conditions even without further policy moves. Consumer price inflation was 3.1 percent in 2025 Q4—above the 1–3 percent target band—and is now projected to reach 3.0 percent in 2026 Q1 and 4.2 percent in Q2, while December-quarter GDP grew just 0.2 percent and recent surveys point to softening business activity and consumer confidence. The weaker currency is adding some upside risk to prices, though it supports exporters, as higher global energy costs and disrupted supply chains cloud the external outlook. Globally, the conflict has lifted oil and refined-product prices, unsettled financial markets and prompted expectations of tighter monetary stances abroad. The Committee stressed it “stands ready to act”; should core inflation, wage growth or medium-term inflation expectations threaten the 2 percent midpoint, it will respond with “decisive and timely” rate increases, whereas a temporary price shock and subdued demand would allow a more gradual return of the OCR to neutral.
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.