- 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 while annual consumer price inflation remained above target at 3.1 percent in the March quarter and is projected to peak at 4.3 percent in September before easing back to the 2 percent mid-point by mid-2027, weak domestic demand and elevated unemployment are tempering medium-term pressures. After a cumulative 100 bp of easing between August and November 2025, the OCR has been on hold since. Core inflation (around 2.3 percent), wage growth (2 percent) and medium- to long-term inflation expectations are still aligned with the target, but business and consumer confidence have fallen, GDP grew only 0.2 percent in 2025 Q4 and the output gap is estimated at –1.3 percent. Externally, oil-supply disruptions from the Middle East conflict are lifting energy costs, raising trading-partner inflation and weighing on global growth; the New Zealand dollar trade-weighted index is broadly steady despite earlier volatility. The Committee sees the balance of risks tilted toward higher inflation and weaker growth and therefore signals that the OCR will “most likely” need to rise sooner and by more than envisaged in February, with the scale and timing of tightening to depend on how wage- and price-setting dynamics evolve relative to demand softness.
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.