Reserve Bank of New Zealand holds OCR at 2.25%
Sydney (27 May)
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee has voted to maintain its official cash rate (OCR) at 2.25% because of inflation uncertainty and tightening monetary conditions.
But the decision was not unanimous. Three members of the Committee voted to hold the OCR at 2.25% and three voted to raise it to 2.5%, RBNZ said on 27 May. RBNZ Governor Anna Breman – who has a tie-breaking vote – supported holding the OCR at 2.25%.
“All Committee members agreed that increasing the OCR at upcoming meetings would likely be necessary to ensure higher near-term inflation does not feed through to higher medium-term inflation,” the bank said.
“The pace of OCR increases will depend on the net effect of persistent wage and price-setting behaviour versus weaker economic activity,” Breman said at a post-announcement press conference.
RBNZ’s Monetary Policy Committee expects to lift its OCR to 2.51% by September 2026, it said. The Committee previously expected to raise its OCR to 2.28% by September 2026.
Westpac New Zealand’s Economics Team expects the Committee to hold its OCR at 2.25% in July and raise it by 0.25% in September, October, and December, it said. But “a July hike can’t be ruled out,” it added.
Annual consumer inflation is expected to peak at 4.3% in September 2026, before falling to 2% in September 2027, according to RBNZ forecasts. Consumer inflation hit 3.1% in March 2026, according to Stats NZ.
Three members of RBNZ’s Monetary Policy Committee voted to lift the OCR because of the range of inputs impacted by the US-Israeli war in Iran and rising surveyed inflation expectations, the bank said.
Three others voted to hold the OCR at 2.25% because medium-term inflation expectations – among businesses and forecasters – remain around 2% and economic indicators have weakened faster than expected over recent months.
Forecasters and businesses’ two-year forward inflation expectations rose to 2.53% in May 2026, up from 2.37% in February and 2.29% a year earlier, according to the RBNZ’s Survey of Expectations.
Businesses interviewed by RBNZ and Treasury officials indicate that weak retail and hospitality demand is limiting consumer price increases and suppressing profit margins, the bank said. Businesses face elevated import costs because of Iran-war-related freight disruptions, alongside rising electricity, insurance, and council rates charges, the bank added.
By Avinash Govind