The RBNZ held the OCR at 2.25%, signalling inflation is returning to target while revising its future rate path slightly higher. Policy remains accommodative for now, but gradual normalisation is expected.

Summary:

• Reserve Bank of New Zealand leaves OCR unchanged at 2.25%.

• Inflation slightly above 1–3% band at end-2025 but expected back inside target this quarter.

• Forward OCR track revised higher versus previous projections.

• Economy in early recovery; labour market stabilising but unemployment elevated.

• Committee signals policy to remain accommodative “for some time,” with gradual normalisation ahead.

The Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate unchanged at 2.25%, striking a cautiously balanced tone as it navigates an early-stage recovery, above-target inflation and a gradually firming policy outlook.

Annual CPI was described as “slightly above” the Monetary Policy Committee’s 1–3% target band at the end of 2025, with food, electricity and council rates cited as key contributors. However, the central bank expressed confidence that inflation is most likely returning to within the band in the current quarter and tracking toward the 2% midpoint over the next 12 months, supported by spare capacity, modest wage growth and contained core inflation.

The economic backdrop remains mixed. The RBNZ said the economy is at an early stage of recovery, with strength in commodity prices supporting agricultural and regional activity. Manufacturing, construction and some retail sectors are benefiting from earlier OCR cuts. Yet households remain cautious, house price growth is weak and unemployment remains elevated despite signs of labour market stabilisation.

The most market-relevant development lies in the updated policy track, which signals a slightly firmer medium-term stance:

• RBNZ sees Official Cash Rate at 2.26% in June 2026 (PVS 2.2%)

• RBNZ sees Official Cash Rate at 2.52% in March 2027 (PVS 2.34%)

• RBNZ sees Official Cash Rate at 2.62% in June 2027 (PVS 2.45%)

• RBNZ sees Official Cash Rate at 3.0% in March 2029

• RBNZ sees TWI NZD at around 68.0% in March 2027 (PVS 66.0%)

• RBNZ sees annual CPI 2.1% by March 2027 (PVS 2.2%)

The upward revision to the OCR path suggests that while the near-term stance remains accommodative, the Committee anticipates a gradual removal of stimulus as the recovery firms and inflation settles sustainably near target.

Minutes revealed a consensus decision to hold rates, though members acknowledged risks in both directions. Some highlighted the danger of policy remaining accommodative for too long, with inflation potentially more persistent. Others warned against reacting too quickly to firms’ pricing intentions, which could entrench expectations of stronger demand.

The Committee reiterated that if the economy evolves as expected, policy will remain accommodative for some time before gradually normalising. However, the subtly higher projected rate path implies that markets may need to price a slightly steeper tightening profile over the medium term.

For NZD and rates traders, the message is clear: steady for now, but the direction of travel has shifted marginally upward.