- Decision
- Raise
- Rate change
- 25 bps
- official cash rate
- 2.75%
The Monetary Policy Committee of the Reserve Bank of New Zealand reached consensus to raise the Official Cash Rate (OCR) by 25 basis points to 2.75%, judging that gradually removing monetary stimulus would return inflation to target while supporting growth and employment and reduce the risk of larger increases later. The OCR was cut 50 basis points to 2.5% in October 2025 and 25 basis points to 2.25% in November, held through May 2026, then raised 25 basis points in July. Annual inflation rose to 4.1% in the June quarter on higher fuel prices linked to the Middle East conflict, but core inflation, expected wage growth and inflation expectations remained consistent with a return to the 1% to 3% target band by mid-2027 and the 2% midpoint later next year. Growth was lacklustre in the June quarter, but the uneven recovery most likely resumed, supported by resilient trading-partner demand and strong export prices, while elevated unemployment, job insecurity and flat house prices weighed on household spending and residential investment. Domestic financial conditions tightened as wholesale rates lifted mortgage and business lending rates, while the exchange rate appreciated slightly. Global energy and petrochemical prices have raised trading-partner inflation and disrupted supply chains, although external growth and commodity export prices remained resilient. The Committee said the OCR may need to rise further under its central outlook, but the path is not predetermined and will depend on risks to medium-term inflation.
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.