Reserve Bank holds OCR at 2.25%, says recovery ‘still at an early stage’
Wednesday, 18 February 2026
The Reserve Bank has decided to keep the Official Cash Rate on hold at 2.25%, but has signalled as expected that it believes the key interest rate will need to rise sooner than it had previously thought.
The bank appeared to be careful not to come across as overly hawkish in its latest monetary policy statement.
It said its new forecasts for future movements in the OCR reflected a “somewhat stronger economic outlook and balanced risks to inflation”.
But it said that if the economy evolved as expected, monetary policy was likely to “remain accommodative for some time”.
Governor Anna Breman said at a media conference that the recovery was “still at an early stage”.
“We expect to see some growth in the economy without inflationary pressures in the near term,” she said.
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ANZ chief economist Sharon Zollner noted the forecast rate track implied one hike in the OCR to 2.5% was likely in the final quarter of the year. The rate track also appears consistent with the Reserve Bank further raising the OCR towards the middle of next year.
Breman confirmed the end-of-year signal, but noted the rate rise was “not entirely priced in” to its forecast.
Financial markets had already been braced for signals interest rates would need to go up sooner than the central bank had previously indicated last November.
Former governor Christian Hawkesby had signalled then that it expected it would be able to leave rates on hold until 2027.
The initial reaction from currency markets suggested today’s statement was viewed as mildly dovish — good news for people with mortgages — with the New Zealand dollar dipping a quarter of a US cent in the immediate aftermath of its release.
Breman said the bank believed its statement was roughly what the market had been expecting.
Richard Holden, chief economist of Chartered Accountants Australia and New Zealand, said the monetary policy statement reflected the likelihood that economic activity was picking up but would not be overly inflationary.
Capital Economics economist Abhijit Surya said the forecast rate track suggested “a decent chance that the bank will hike rates by the fourth quarter of this year”.
But he also noted one member of its monetary policy committee had argued — more hawkishly — that “if economic activity recovers as expected, monetary stimulus could begin to be withdrawn somewhat earlier without compromising the economic recovery”.
The bank’s economic forecasts suggested inflation would drop quite quickly from its last recorded rate of 3.1% and then continue to decline to about 2% early next year.
It is also forecasting unemployment to fall from 5.4%, but only very gradually, to about 5% by the end of the year.
Breman said the Reserve Bank would increase the number of times it reviewed the OCR to eight, next year, from seven currently. The change was related to it then getting monthly data on inflation from Stats NZ, which she said was a development it was looking forward to.