Reserve Bank lifts OCR to 2.5%, more rate rises to come but timing ‘highly uncertain’

Wednesday, 8 July 2026

The Reserve Bank has agreed to ease some of the monetary stimulus it has been giving the economy by raising the Official Cash Rate by 25 basis points to 2.5%.

That marks the first time the central bank has raised the key interest rate since May 2023.

Finance Minister Nicola Willis said the bank was “essentially easing their foot a little bit off the accelerator … in part because they see the economic recovery strengthening”.

She forecast there wouldn’t be a big impact on retail interest rates, which include mortgages, given banks had been anticipating that the OCR would rise this year.

Read more:

• Reserve Bank rate rise appears more likely than not as calls grow for ‘normalisation’

• ‘I'm pro-growth’: Why Kiwibank’s Jarrod Kerr opposes OCR rise

• Shifting sands under Reserve Bank ahead of next OCR decision

Five out of nine prominent economists polled by the New Zealand Institute of Economic Research had tipped a rate rise, ahead of the decision, with the others expecting a hold.

The Reserve Bank said it reached the decision by consensus, meaning all six members of its monetary policy committee backed the change.

The bank said near-term pressures on inflation had eased following the partial reopening of the Strait of Hormuz to tanker traffic and a fall in global oil prices.

It now believes annual inflation peaked at 3.9% in the three months to the end of June — Stats NZ has yet to report the actual figure — but would drop back to 3.3% in the current quarter.

When it issued its last monetary policy statement in May, it had been expecting it to peak at 4.3% in the current quarter.

But it warned the effects of the oil shock would “linger for some time and the outlook for medium-term inflation pressures remains uncertain”.

The stance the bank was taking was “calibrated to bring inflation back to target without causing unnecessary economic instability”, it said.

It assessed the economy was growing again after losing momentum during the June quarter because of the oil shock and would grow 0.6% in the current quarter.

As is usual, the bank said future OCR decisions would depend on the data it received.

But it reinforced the likelihood of more rate rises to come by remarking that “some further reduction in monetary stimulus is likely to be required to return inflation to the 2% target mid-point”.

It described the timing of future rate rises as highly uncertain.

ANZ chief economist Sharron Zollner, who is expecting further rate hikes in September and October, said that statement attuned with its view that there was “little to be gained by providing very strong guidance in such uncertain times”.

The New Zealand dollar edged up by about a tenth of a US cent to just over US57c in the wake of the review, suggesting financial markets were relatively unruffled.

The Reserve Bank referenced the recent weakness of the New Zealand dollar several times in justifying its OCR call.

Debt markets had been pricing-in about a 70% chance of a rate rise prior to the decision.

The monetary policy committee said there was some uncertainty about what the neutral interest rate was.

That is the rate at which the OCR would neither be adding stimulus nor putting the brakes on the economy.

Reserve Bank governor Anna Breman said the bank believed that normally sat somewhere between 2.5% and 3.5%, but chief economist Paul Conway said the neutral rate might be a bit higher than that at the moment.

One of its independent members, Prasanna Gai, said recent economic shocks might have increased the neutral rate by reducing global productive capacity and raising investment demand, relative to available global savings.

Westpac chief economist Kelly Eckhold — who had forecast the Reserve Bank would wait until September before raising the OCR — said its monetary policy committee seemed concerned a hold would prompt further easing in financial conditions.

“Hence it seems the RBNZ continues to see an end-of-year OCR of 2.75% to 3% as being reasonable,” he said.

Breman also announced the Reserve Bank would fully unwind the quantitative easing it conducted during the peak of the Covid pandemic by selling the remaining $533m of bonds it acquired during the period by June next year.

That would have no material impact on monetary policy settings, she said.