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2026-05-27 10:03:46
[Reserve of New Zealand Keeps OCR Unchanged at 2.25%, Warns of Inflation Risks and Potential for Earlier Rate Hikes] 1. The Reserve Bank of New Zealand (RBNZ) voted today to maintain the Official Cash Rate (OCR) at 2.25%. Annual consumer price inflation for the March quarter was 3.1%. 2. The Middle East conflict is pushing up short-term inflation and weakening economic activity. Inflation is expected to peak at 4.3% in the September quarter and fall back to the 2% target midpoint by mid-2027. Currently, core inflation, wage growth, and medium- to long-term inflation expectations remain consistent with a return to the 2% target in the medium term. 3. Uncertainty persists in the global economic outlook. Supply chain disruptions, rising petrochemical prices, and a more fragmented global trade environment are impacting the economic outlook. Economic growth will vary across countries due to differences in energy intensity, fiscal support, and exposure to artificial intelligence investment. Overall, New Zealand's trading partners are expected to face the dual pressures of slowing growth and rising inflation. 4. Domestically, business contacts and surveys indicate weakening confidence and spending. For some businesses, rising costs are squeezing profit margins and dampening investment and hiring. Consumer confidence has fallen sharply, and the housing market remains weak. Economic conditions continue to diverge across regions and sectors, with high commodity prices supporting income levels in some parts of New Zealand. 5. The outlook for medium-term inflationary pressures remains uncertain. If households and businesses anticipate further cost increases and incorporate these expectations into current pricing and wage decisions, inflationary pressures could remain high. However, weak demand and high unemployment will restrain medium-term inflationary pressures. 6. The Committee will continue to focus on ensuring that rising costs do not lead to persistently high medium-term inflation, while striving to avoid unnecessary economic volatility. Overall, the OCR is likely to need to rise sooner and more significantly than anticipated in the February Monetary Policy Statement. The pace of interest rate hikes will depend on persistent wage and pricing behavior, and the relative impact of weak economic activity on medium-term inflationary pressures.
