New Zealand’s Monetary Policy Committee raised the Official Cash Rate by 25 basis points to 2.50% on Wednesday, judging it was time to start withdrawing stimulus even as effects from this year’s oil shock continue working through the economy.
First rate hike in three years. The kiwi $ was marked higher (see chart attached).
The move followed the partial reopening of the Strait of Hormuz, which has driven oil and petrochemical prices lower and eased near-term inflation. But the Committee warned the shock’s effects will linger, with medium-term inflation still uncertain. Annual headline inflation is now expected to have peaked at 3.9% in the June quarter, easing to 3.3% in September and returning to the 2% target mid-point by mid-2027.
New Zealand’s recovery lost momentum in the June quarter as the oil shock weighed on activity, though growth is expected to resume in September as effects fade and lower fuel prices support spending. The Reserve Bank’s Kiwi-GDP nowcast points to 0.6% growth for the quarter. Globally, activity has stayed resilient despite tariffs and Middle East tensions, aided by strong AI investment and defence spending, though trading partner inflation is elevated and expected to ease toward 2% only in 2027.
Domestic financial conditions have eased recently on lower wholesale rates and a weaker currency, following material tightening earlier in the year. The Committee said the hike was partly meant to avoid an unwarranted further easing in those conditions.
Committee members were split on risk: two saw medium-term inflation risks skewed to the upside, citing lingering cost pass-through and the shock’s potential to embolden firms’ pricing behaviour, while four viewed risks as broadly balanced, pointing to weak consumption and uncertainty over how far the recovery will broaden. A sustained currency depreciation was flagged as a possible source of further imported inflation.
The Committee judged the OCR still accommodative and said further increases appear likely at coming meetings, though their timing remains highly uncertain and will depend on price-setting behaviour and the economy’s remaining spare capacity.
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Coming up at 3pm New Zealand time
- 0300 GMT
- 2300 US Eastern time
Is the post meeting press conference.
This article was written by Eamonn Sheridan at investinglive.com.
