The Reserve Bank is widely expected to hold the Official Cash Rate at 2.25% when it delivers its Monetary Policy Review at 2pm on Tuesday. In ordinary times, a hold would be unremarkable. These are not ordinary times. The Iran conflict has upended oil markets and freight routes, inflation forecasts are being torn up, and the economy that was supposed to be recovering is barely moving. Standing still is itself a decision, and this one transfers the near-term pain directly onto businesses and borrowers.
The fog that justifies doing nothing
BNZ Head of Research Stephen Toplis captured the central bank’s dilemma with characteristic bluntness: “A nightmare time for central banks and economic forecasters, facing a significant inflation spike but faced with a lack of information and great uncertainty.” His prescription was equally direct: “If you know nothing, do nothing.”
Governor Anna Breman has laid the intellectual groundwork for a hold. She has warned that “we are likely to see higher headline inflation over the near term, and somewhat weaker growth momentum” as supply chain disruptions feed through, but has been explicit that the RBNZ will not hike directly in response to oil price spikes. Instead, she is watching for “second round effects” where businesses raise prices and workers demand wage compensation.
That framework sounds prudent. It also means the RBNZ is consciously allowing a cost-of-living hit to wash through the economy before it acts.
The numbers that make caution uncomfortable
The forecasts are ugly. Westpac has slashed its 2026 GDP growth forecast to roughly 1.9%, down from 3.3% before the conflict. Both Westpac and ASB now expect CPI to peak around 4.0-4.1% in 2025/26 before easing below 3% in 2027. Hawks within Westpac warn annual inflation could reach 4-5% if fuel and freight disruptions persist.
Markets are already pricing in more than three 25-basis-point hikes by year-end. Westpac’s central case is more restrained, expecting just one 25bp increase across all of 2026. That gap between market pricing and bank forecasts tells you how much uncertainty is being papered over.
HSBC Chief Economist Paul Bloxham offered what he called “cold comfort”: New Zealand’s weak economy provides “some insulation against the current shock” because there is less to overheat. Being too sick to catch a fever is not the reassurance businesses need.
Firms are protecting margins, not investing
The December 2025 quarter data from Stats NZ shows business sales reached $212 billion, up 5.9%, and operating profit grew 13% to $31 billion. On the surface, that looks healthy. Underneath, salaries and wages grew just 1.8% to $33 billion. Firms are squeezing costs, not expanding. They are sitting on whatever margin improvement they can find rather than hiring or investing.
Credit conditions confirm the defensive posture. The RBNZ’s own survey shows commercial property loan demand at negative 12.6, deeply negative. Businesses are not borrowing regardless of where the OCR sits. The rate level matters less than confidence, and as Treasury noted in December, “greater uncertainty this year had constrained the recovery and led to precautionary behaviour by households and businesses.”
The real rate that matters is already moving
Here is what the OCR hold obscures: the rate businesses actually pay to refinance debt is set by wholesale swap markets, not the OCR directly. Those swap rates are already repricing on conflict volatility, pushing fixed borrowing costs higher before the Reserve Bank has moved at all. A firm rolling over a two-year facility this month is facing a materially different rate environment than the OCR headline suggests.
The MPC’s internal division makes the forward path even murkier. Hawks argue the OCR was set under a different outlook and that real rates have slipped into deeply negative territory, making it “no longer appropriate to retain stimulatory conditions”. Doves counter that tightening into a fragile recovery risks killing it entirely. Both sides have a point. Neither offers businesses any certainty.
Tuesday’s announcement will be followed by the first-ever post-MPR press conference at 3pm. The hold itself is already priced in. What matters is whether Breman signals that “second round effects” are materialising. Any hint that businesses are passing through fuel and freight costs, or that wage demands are firming, will harden the case for hikes and tighten the window before the next squeeze arrives. For firms already running lean, the message from the Reserve Bank is clear enough: you are on your own for now.
Sources
- RNZ: Reserve Bank expected to hold OCR steady at 2.25% (2026-04-07)
- MPA: RBNZ tipped to hold at 2.25% as oil shock tests outlook (2026-04-07)
- NZ Herald: Governor Anna Breman says Reserve Bank unlikely to lift interest rates directly in response to oil price spikes (2026-04-04)
- MPA: RBNZ split over how fast to lift rates as oil shock hits fragile economy (2026-04-06)
- MPA: RBNZ signals steady OCR as Middle East shock hits mortgage outlook (2026-03-28)
- Scoop: Business Financial Data – December 2025 Quarter (2026-03-12)
- Treasury: Fortnightly Economic Update – 4 December 2025 (2025-12-04)