Official Cash Rate: New Reserve Bank Governor keeps OCR on hold at 2.25%
Finance Minister weighs in on OCR
Cameron Smith
Finance Minister Nicola Willis said the Monetary Policy Statement showed a recovering economy.
"New Zealand had three years in which inflation was out of control and that led to the cost-of-living crisis which we’re still experiencing.
"As we approach the election, the question I think should be in New Zealanders’ minds is when I compare different parties, what effect their spending will have on interest rates."
Cameron Smith
Infometrics principal economist Brad Olsen said the Reserve Bank appeared less fazed about current inflationary pressure than expected.
"Although the bank has lifted its OCR track slightly, as expected, the framing of inflationary risks as balanced shows less urgency in needing to respond to current conditions than we might have expected."
Olsen said there was a lot riding on the RBNZ's expectation that spare capacity in the economy would limit inflationary pressures and lower household spending growth would limit how much prices can rise.
"We worry that, as we’ve seen in the past, the bank may be at the early stages of ignoring real economic figures in front of us and relying on theoretical expectations to overcome present economic trends."
Olsen said he remained of the view that first increase to the OCR would be in December 2026. "But the risks of an earlier increase are growing."
Cameron Smith
ANZ chief economist Sharon Zollner said the RBNZ’s rate track implied one hike by the end of the year was a likelihood.
“We continue to forecast a December kickoff, but agree risks are not one-sided – the inflation starting point is stronger than expected and data since November has generally been stronger than the RBNZ anticipated, but on the other hand some recent data such as REINZ [Real Estate Institute of New Zealand] house sales and prices has suggested that the rapid turn in interest rates in recent months may have already caused a wobble.”
Cameron Smith
ASB senior economist Mark Smith said the Reserve Bank’s tone was tilted on the “dovish side” and contained “few red flags” to suggest an imminent need for the OCR to rise.
Smith said the RBNZ appeared content to bide its time.
“The RBNZ seems to have sufficient comfort on the inflation outlook to be able to reduce monetary policy accommodation in measured and gradual steps.”
ASB is forecasting a 25-basis-point (bps) OCR hike in December with a gradual pace of 25bps hikes until the OCR peaks at 3.25% towards the end of 2027.
Smith said he was still concerned about the inflation outlook and believed it would hover closer to 3% than 2% this year.
Housing market remains cautious
Cameron Smith
Cotality chief property economist Kelvin Davidson said when it came to the housing market, it was now a case of “waiting to see how a range of conflicting forces play out".
“On one hand, although banks have already been pushing small moves in some mortgage rates lately, generally they remain fairly stable and much lower than before. This will be supporting property sales activity and house prices."
But Davidson said a cautious attitude was still prevalent across the market and “it’s difficult to see a sharp turnaround for activity or prices until jobs growth picks up and the unemployment rate falls more emphatically. This looks set to be a story for later in 2026, rather than sooner”.
Cameron Smith
The committee said members noted the risk of inflation remaining more persistent, given surveys showing somewhat elevated inflation expectations and business pricing intentions.
“One member supported maintaining the OCR at current levels for now but noted that if economic activity recovers as expected, monetary stimulus could begin to be withdrawn somewhat earlier without compromising the economic recovery,” the bank said.
Cameron Smith
In its tables, the Reserve Bank’s OCR forecasts very little from its last published rate track, issued in November.
However, today’s release suggests the OCR will reach 2.5% by March 2027, instead of the previous forecast of June of that year.
Market pricing before the announcement pointed to an OCR of 2.49% by October this year, 2.63% by December, 2.80% by February next year and 3.05% by May of that year.
'Definitely on the dovish side'
Cameron Smith
“It was definitely on the dovish side of market expectations,” ANZ Bank strategist David Croy said.
“The markets went into this thinking there was a possibility that they might be a bit hawkish, but those expectations had faded a wee bit over the past few days, which is why we haven’t seen a huge reaction today,” he said.
Cameron Smith
The release was more “dovish” than the market expected.
The New Zealand dollar fell by about 30 basis points (bps) to US60.15c on the news from US60.45c before the 2pm announcement, while two-year swap rates eased to 3.000% from 3.025%.
Cameron Smith
The Reserve Bank noted signs of domestic financial stress had eased as falling interest rates had reduced debt-servicing pressures.
"Non-performing housing loans have also declined, and banks expect further reductions in housing and commercial property impairments over 2026."
Cameron Smith
The average mortgage rate had declined to 5.1% but further downward adjustments were "expected to be less than assumed in November", the Reserve Bank said.
Banks have been increasing longer term mortgage rates in recent weeks on the back of rising wholesale interest rates.
Cameron Smith
The bank said house prices had continued to edge downwards, despite lower mortgage rates and a modest pick-up in housing market activity.
"This possibly reflects weak population growth and elevated long-term interest rates. House price growth is expected to gradually increase over 2026 and then grow at around the rate of household income growth over the medium term."
Cameron Smith
“The committee is confident that inflation will fall to the 2% midpoint over the next 12 months due to spare capacity in the economy, modest wage growth, and core inflation within the target band," the committee said.
The bank said the economy was at an early stage in its recovery.
“With ongoing strength in commodity prices, economic activity in the agricultural sector and regional New Zealand remains strong,” it said.
“Although residential and business investment is increasing, households remain cautious in their spending.
“The labour market is stabilising, but unemployment remains elevated.
“House price growth remains weak, dampening household wealth and inclination to spend.”
Cameron Smith
“As the recovery strengthens and inflation falls sustainably towards the target midpoint, monetary policy settings will gradually normalise,” the bank said.
Cameron Smith
The bank noted the annual Consumers Price Inflation index was slightly above the committee’s 1% to 3% target band at the end of 2025 but said inflation would “most likely” return to within the band in the current quarter.
Cameron Smith
The Reserve Bank of New Zealand has kept its Official Cash Rate unchanged at 2.25%, in line with market expectations.
In a statement, the bank said the monetary policy committee had reached consensus to keep the Official Cash Rate (OCR) on hold.
“If the economy evolves as expected, monetary policy is likely to remain accommodative for some time,” it said.
Official Cash Rate kept on hold at 2.25%
Cameron Smith
What the economists say about today’s OCR announcement
Cameron Smith
ANZ chief economist Sharon Zollner says: “The economics support removing the mild easing bias that was built into the OCR track in November and replacing it with a mild tightening bias.”
Westpac chief economist Kelly Eckhold says: “We don’t think the RBNZ [Reserve Bank] will be trying to scare the horses into pushing for an earlier start to tightening than markets have already priced.
“Hence, the RBNZ is more likely to opt for more dovish messaging than more hawkish messaging.”
ASB economist Wesley Tanuvasa says: “It will be interesting to see how governor Breman characterises the data during her debut against the NZ inflation dragon.
“Her push for increased transparency may result in MPC members’ views being teased out more in the Record of Meeting, and we look forward to more openness as 2026 unfolds. RBNZ judgment on inflation will be pivotal.”
BNZ head of research Stephen Toplis says: “We believe the RBNZ will raise rates in September 2026 but, given current uncertainty, we do not predict it to express that intent at the upcoming meeting.
“We do expect it to acknowledge the pick-up in growth and higher starting point for inflation, but to still express confidence that inflation will come back to the mid-point of the target band.”
Why the OCR has to rise
Cameron Smith
The New Zealand Herald's business editor at large Liam Dann explains why we shouldn’t panic at the prospect of the OCR rising again.
Economist Brad Olsen talks OCR
Cameron Smith
Who is the Reserve Bank’s new Governor?
Cameron Smith
How the OCR has moved recently
Cameron Smith
- August 2024: OCR is cut 25bps from 5.5% to 5.25%
- October 2024: OCR is cut 50bps to 4.75%
- November 2024: OCR is cut 50bps to 4.25%
- February 2025: OCR is cut 50bps to 3.75%
- April 2025: OCR is cut 25bps to 3.50%
- May 2025: OCR is cut 25bps to 3.25%
- July 2025: OCR is held at 3.25%
- August 2025: OCR is cut 25bps to 3%
- October 2025: OCR is cut 50bps to 2.50%
- November 2025: OCR is cut 25bps to 2.25%
What can we expect from today’s OCR decision?
Cameron Smith
Cameron Smith
Welcome to the Herald’s live coverage of new Reserve Bank Governor Anna Breman’s first Official Cash Rate decision.
The Official Cash Rate (OCR) decision and full Monetary Policy Statement (MPS) are due at 2pm.
It’s the first OCR decision since November last year, when the cash rate was cut to 2.25%.
No such movement is expected today, but we will get the central bank’s new forecasts and projected interest rate track.
Breman jumps into the hot seat at the Reserve Bank, having joined last year from Sweden's central bank.