Reserve Bank of New Zealand raises OCR to 2.5%

Sydney (9 July)

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee has voted to raise its official cash rate (OCR) to 2.5% because of easing financial conditions and above-target inflation.

Two members of the Committee see upside risks to medium-term inflation, while four – including RBNZ Governor Anna Breman – see balanced inflation risks, the RBNZ said on 8 July.

“The [Committee’s] monetary policy stance is calibrated to bring inflation back to target without causing unnecessary economic instability,” RBNZ said in a statement. “Annual headline inflation is expected to return to the target mid-point [of 2%] in mid-2027,” it added.

The RBNZ has revised down its near-term inflation forecasts from its Monetary Policy Statement released on 27 May. The bank previously expected inflation to peak at 4.3% in September 2026 and fall to 2% in September 2027.

“[But] lower [than expected] oil prices mean that inflation may have already peaked. We estimate that [inflation reached] 3.9% in the June quarter. From there, we expect it to fall to 3.3% in the September quarter,” Breman said at a press conference on 8 July.

The RBNZ has also upgraded its economic growth forecasts since May. Its GDP nowcasting model – based on high-frequency data – indicates that the New Zealand economy will grow by 0.6% in July-September, the bank said. The RBNZ previously expected New Zealand’s economy to grow by 0.2% over that period.

Oil prices have declined faster than the RBNZ expected in recent weeks, largely because of the US-Iran Peace Deal. The bank’s May forecasts assumed that Dubai oil prices would fall to $96/barrel by the end of 2026, it said at the time.

But six-month forward Dubai oil futures prices last traded at $67.43/barrel on 7 July, down from $103.13/barrel on 1 May.

By Avinash Govind