The Reserve Bank is expected to hold the Official Cash Rate (OCR) at 2.25%, as it continues to weigh the need to support economic activity against the risk of rising inflation linked to escalating tensions in the Middle East.
BNZ head of research Stephen Toplis said the Monetary Policy Committee has just one key question to consider: whether the current inflation shock will become more persistent. He added that the answer remains highly uncertain.
“We have six decision-makers, all of whom will be relatively perplexed about the future of the world.”
He said the answer would depend on how long the war lasts, how quickly oil production recovers to meet demand, and the number of subsequent price shocks triggered by the conflict.
Toplis said the key risk was clearly higher inflation, but it remained uncertain whether that would also lead to weaker economic growth.
However, Kiwibank chief economist Jarrod Kerr was a prominent opponent of any imminent rate increase.
“It is simply too early to assess the inflationary pulse and the likely unwind. It is too early to gauge the impact on demand,” Kerr said.
“And it is too early to see the adverse effects in the labour market. Therefore, it’s too early for the RBNZ to hike.”
He said that an early increase in the Official Cash Rate (OCR) would undermine and potentially derail the fledgling economic recovery.
Westpac chief economist Kelly Eckhold said an immediate rate increase was justified, although he expected most members of the Monetary Policy Committee to vote to hold.
“The outlook clearly has changed now that headline inflation is set to move above 4% for the balance of 2026.”
“It would be much better to have the OCR near neutral today. Hence, beginning to get there now seems a pressing priority.”
Annual inflation stands at 3.1% and has remained above the midpoint of the Reserve Bank of New Zealand’s 1–3% target range for over a year.