New Zealand's central bank hikes rates again, warns more increases could follow
New Zealand's Monetary Policy Committee (MPC) has increased the official cash rate (OCR) by 25 basis points to 2.75%, the latest step in an ongoing tightening cycle driven largely by an oil price shock linked to conflict in the Middle East.
Annual inflation climbed to 4.1% in the June quarter, well above the RBNZ's 1–3% target band, largely due to higher fuel costs flowing through to the wider economy. Excluding vehicle fuels, however, annual inflation was a more modest 2.9%, and most measures of core inflation remain within the target band.
The committee reached its decision by consensus, stating it judged that "gradually removing monetary stimulus is appropriate to return inflation to the 2% target mid-point while supporting growth and employment." Members further noted the move "reduces the risk that the OCR needs to increase by more later."
Mixed picture across the economy
The bank's Record of Meeting paints an uneven recovery. Export-facing regions and sectors are benefiting from resilient offshore demand and strong commodity prices, while households exposed to the domestic economy — particularly in Auckland and Wellington — continue to face soft job prospects and flat house prices.
The committee acknowledged that "job insecurity and falling real house prices may be contributing to precautionary behaviour," with household saving rates rising and consumption growth remaining subdued in several regions.
Looking ahead, the RBNZ expects the recovery to broaden steadily, with employment growth strengthening and inflation returning to the 2% mid-point by late 2027. It also flagged that the OCR path is not fixed, noting the committee's "response to data is not mechanical, as it depends on its assessment of various factors that impact inflation."
The RBNZ noted that higher wholesale interest rates have already flowed through to bank mortgage and business lending rates, while a more limited pass-through to term deposit rates has kept funding costs somewhat contained for banks.
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