The Reserve Bank of New Zealand (RBNZ) kept the official cash rate steady at 3.25%, maintaining the OCR level set in May.
“Annual consumer price inflation will likely increase towards the top of the Monetary Policy Committee’s 1 to 3% target band over mid-2025. However, with spare productive capacity in the economy and declining domestic inflation pressures, headline inflation is expected to remain in the band and return to around 2% by early 2026,” RBNZ said in its media release.
RBNZ said a pause was appropriate while awaiting further data on inflation and the domestic jobs market, as well as more details regarding the impact of US tariffs.
“Elevated export prices and lower interest rates are supporting a recovery in the New Zealand economy. However, heightened global policy uncertainty and tariffs are expected to reduce global economic growth. This will likely slow the pace of New Zealand’s economic recovery, reducing inflation pressures.”
The committee indicated that additional reductions to the OCR were possible.
“If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further.”
Regarding the decision to keep the OCR unchanged, Deputy Prime Minister David Seymour noted that headline inflation has been a global concern.
“You see the Australians? They cut hard, then they had a rebound, and now they’ve started cutting again,” Seymour said.
“In New Zealand we haven’t had to do that. Far better to be falling, pausing, and hopefully falling again than having to go back for a second look as other countries have had to.”
For Finance Minister Nicola Willis, New Zealand’s economic recovery was ongoing despite the prevailing uncertainty.
“We always want to see inflation kept low, so those upward pressures we do keep an eye on. I note that the Reserve Bank sees both upward and downward pressures over the next few months, and it’s important they monitor those closely,” Willis said.
The Reserve Bank’s decision to keep the cash rate unchanged was widely expected by economists.
ASB senior economist Mark Smith said the outcome aligned with expectations, describing the OCR of 3.25% as being in the “Goldilocks zone.”
Infometrics economist Brad Olsen said market expectations are for the OCR to remain unchanged in July, as the RBNZ opts to take a pause.
He also noted that the market anticipates “one more cut”, likely scheduled to occur sometime before the end of 2025.