New Zealand central bank raises rates as inflation fight resumes

The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.50 percent on Wednesday, resuming tightening after a year of cuts and putting inflation back at the center of policy.

The Monetary Policy Committee reached consensus on the increase, but its members were not uniform in their outlook. Two members saw inflation risks tilted to the upside, while four judged them broadly balanced. Governor Anna Breman said weak demand could limit companies’ ability to pass higher costs on to consumers, underscoring the bank’s attempt to restrain prices without choking off activity. The OCR still looked accommodative, and further reduction in monetary stimulus is likely to be needed to return inflation to the 2 percent midpoint of the bank’s 1 to 3 percent target range.

The decision followed the partial reopening of the Strait of Hormuz, which has helped push global oil and petrochemical prices lower. Even so, the effects of the energy shock would linger and medium-term inflation pressure remained uncertain. New Zealand’s recovery had already been underway before the Middle East conflict, then lost momentum in the June quarter as the oil shock weighed on activity, with growth expected to resume in the September quarter as those effects fade and confidence improves.

Stats NZ data put annual CPI inflation at 3.1 percent in the March 2026 quarter, unchanged from the December quarter. In the same snapshot, petrol prices rose 18.6 percent in March and diesel prices jumped 42.6 percent, while GDP expanded 0.8 percent and unemployment stood at 5.3 percent. The Reserve Bank’s May 2026 survey put one-year-ahead inflation expectations at 5.6 percent, up from 5.2 percent, two-year expectations at 4.9 percent, up from 3.4 percent, and five-year expectations at 4.0 percent, up from 3.3 percent.

The OCR stood at 3.25 percent in July 2025, was cut to 3.0 percent in August, 2.5 percent in October and 2.25 percent in November, before Wednesday’s increase back to 2.50 percent.