The Reserve Bank of New Zealand leaves door open for further 25 basis point increases if energy costs sustain inflation above target.
The Reserve Bank of New Zealand (RBNZ) indicated a cautious approach to monetary policy, emphasizing a shift toward neutral settings rather than outright tightening. Last week, the Monetary Policy Committee raised the official cash rate by 25 basis points to 2.5%, its first hike in three years, following 325 basis points of cuts since August 2024.
RBNZ chief economist Conway warned that higher oil prices could entrench inflation expectations, with annual inflation forecast to peak at 3.9% in June—well above the central bank’s target band. The bank acknowledged structural growth constraints but did not rule out additional hikes if Middle East-driven cost pressures persist.
Markets may temper expectations for aggressive tightening, as the RBNZ frames its moves as a calibrated reduction in stimulus rather than a full tightening cycle.