- Decision
- Raise
- Rate change
- 25 bps
- official cash rate
- 2.5%
The Reserve Bank of New Zealand’s Monetary Policy Committee increased the Official Cash Rate by 25 basis points to 2.50 percent, saying that although lower oil and other petrochemical prices following the partial reopening of the Strait of Hormuz have eased near-term inflation pressures, annual consumer price inflation is still expected to remain above the 1 to 3 percent target range in coming quarters and medium-term inflation pressures remain uncertain as economic activity is expected to strengthen. The Committee said financial conditions have eased as wholesale rates declined and the trade-weighted New Zealand dollar depreciated, and it continued to view the current OCR as accommodative. Domestically, the recovery that was underway before the Middle East conflict lost momentum in the June quarter, but the Reserve Bank’s Kiwi-GDP nowcast points to 0.6 percent growth in the September quarter, with recent indicators showing weaker demand even as business confidence and some activity measures improved in June. Globally, the central bank said growth has remained resilient despite tariffs and conflict in the Middle East, supported by strong artificial-intelligence investment and spending on defence and economic security, while headline inflation in trading partners has risen but is expected to ease close to 2 percent in 2027. The Committee said some further reduction in monetary stimulus is likely to be required, with future OCR decisions dependent on incoming data, price-setting behaviour and the strength of economic activity.
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.