RBNZ expected to leave OCR on hold, but signal rate rise later this year

Monday, 16 February 2026

Reserve Bank governor Anna Breman is expected to announce on Wednesday that the bank will hold the Official Cash Rate at 2.25% for the time being.

But economists believe it will revise its November forecast that rates are likely to stay on hold throughout the year, and instead signal at least one rate rise is in the pipeline amid growing confidence a meaningful cyclical recovery in economic activity is under way.

The central bank’s job of attempting to smooth out ups and downs in economic activity became more complex last month, when Stats NZ reported inflation had moved above its 1% to 3% target band.

Any change in the Reserve Bank’s forecasts has the potential to feed through into fixed-term mortgage rates, although financial markets have already been pricing-in two rate rises this year even without the central bank’s encouragement.

Read More:

• Labour accuses Nicola Willis of ‘political manipulation’ over timing of RBNZ Covid review

• The question isn’t whether the economy is recovering, it is what it is recovering to

• NZ Economic Forum: Warnings of ‘silver tsunami’ coming for Govt spending

ANZ chief economist Sharon Zollner said it expected the rate track the Reserve Bank will publish on Wednesday would indicate a hike towards the end of the year was likely, but that the bank would attempt to sound open-minded.

“Relative to current market pricing, the RBNZ’s track is likely to be considerably less aggressive.

“But we doubt that would be intended, nor taken, as a slap-down,” she said, suggesting the bank would be more hawkish than November, but not as hawkish as the market.

The Reserve Bank’s modelling tool is currently forecasting a solid but not spectacular 1.4% recovery in economic activity in the six months to the end of March.

ASB economist Wesley Tanuvasa said its own assumption was the OCR would rise this year, before peaking at 3.25% late next year.

BNZ research head Stephen Toplis also forecast a “modestly higher rate track”. He is forecasting the first hike to the OCR will come in September, but not for the Reserve Bank to acknowledge that on Wednesday.

“There is now little doubt in our minds that the economic recovery is gaining momentum,” Toplis said.

“The pace of expansion is likely to be constrained. But even with only modest growth, there are worrying signs that inflation is not as dead as one might expect it to be, begging the question as to how low New Zealand’s potential growth rate might be.”

Wednesday’s monetary policy statement (MPS) would be the first opportunity for Breman - who took up her role in December - to show her true colours, Toplis said.

“We should all be a lot wiser about her monetary policy thoughts, and those of a monetary policy committee no longer influenced by Adrian Orr or Christian Hawkesby, once the February MPS is published.”

The Reserve Bank’s meeting will take place as controversy swirls over whether the Government may be hoping to use an inquiry it has ordered into monetary policy during the Covid pandemic as an attempt to embarrass the Opposition in the run-up to the election.

Finance Minister Nicola Willis has appointed Athanasios Orphanides, a former governor of the Central Bank of Cyprus, and former Reserve Bank assistant governor David Archer, to conduct the review, the results of which are due to be released in September, six weeks before Kiwis go to the polls.

The terms of reference for the review specifically include whether the benefits of quantitative easing by the Reserve Bank and its Funding for Lending Programme, which saw it lend money directly to banks to on-lend to borrowers, “justified the risks and costs”.

In a speech in 2021, Orphanides described quantitative easing by central banks in Japan, Europe and the US during the pandemic as a policy success that “prevented a financial market meltdown and facilitated the financing of an essential fiscal expansion”.

Breman noted last week that the Reserve Bank’s own regular review of monetary policy, which was circumspect about the criticisms it made of the bank’s performance, had been peered-reviewed by overseas experts appointed by the bank.

But Willis dismissed that review to reporters on Wednesday as a window-dressing exercise “that gave themselves essentially full marks”.