Our take on the latest Monetary policy review (Wed 8 Jul 2026)
2.5%
The key numbers...
The Reserve Bank increased the official cash rate (OCR) from 2.25% to 2.5% today, meeting expectations, with almost 80% of economists surveyed by Reuters expecting a rise. The increase was the first lift in the OCR in over three years. Following the split vote last meeting, the Monetary Policy Committee decision today was reached by consensus.
The Bank’s emphasis around today’s increase was around getting inflation back to the 2%pa midpoint of the target band. Although lower fuel prices have reduced immediate inflationary pressures, the Bank noted risks around how much recent cost increases will feed through into higher prices, the lower exchange rate, and future reductions in the economy’s spare capacity as growth recovers.
The Bank now expects inflation of 3.9%pa in the just-completed June quarter and 3.3%pa in the September quarter, down from forecasts of 4.2% and 4.3%pa respectively in May’s Monetary Policy Statement. This lower forecast reflects “smaller direct price effects due to lower oil prices, as well as reduced pass-through to other consumer prices.”
Although further increases in the OCR are likely, the Bank was careful not to tie itself to and specific timing or magnitude for these lifts. The Bank said that “while further OCR increases appear likely at upcoming meetings, their timing is highly uncertain”, and that future “OCR decisions will depend on how incoming data, price-setting behaviour, and the strength of economic activity affect medium-term inflation pressures.”
...and our reaction
Today’s decision reflects a need for the Reserve Bank to get the OCR back towards neutral, or about 3%, over coming months. The need for less stimulatory monetary conditions is true, whether the Bank is pushing against second-round price from the recent fuel price shock, or removing stimulus from the economy as growth gets set to recover in coming quarters.
The major news since the Bank’s last OCR decision in May has been the initial peace deal signed by the US and Iran, leading to the cessation of hostilities and the reopening of the Strait of Hormuz – mostly. Much lower oil prices have reduced the near-term outlook for inflation. But data about the New Zealand economy, price-setting behaviour, and inflation risks has been very limited, leaving a high degree of uncertainty about the future path for interest rates.
The Bank noted that “financial conditions had eased in recent weeks” through lower wholesale rates as expectations about future OCR increases had been pared back, with the lower New Zealand dollar also representing an easing. A failure to meet market expectations today would have led to a further easing in monetary conditions, which the Bank judged would have been “unwarranted” at this time.
We continue to expect two further interest rate rises this year, taking the OCR to 3% by the end of this year. The risks around this forecast lie slightly to the downside. A lack of cost pass-through or a limited bounce in economic growth after the June quarter’s weakness could encourage the Bank to raise rates more slowly during the second half of 2026.
Latest updates
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2.75% Official cash rate unchanged
4 vs 3 Tight vote between a hold and a raiseLikely further increase to 3.00% in Dec 2026Another one – going earlier to protect against faster, higher, later
2.75% Official cash rate from 2.50%OCR track suggests October hold and December hikeRBNZ wants to avoid holding OCR too long, having to raise faster, higher & laterSplit decision keeps OCR at 2.25% for now
2.25% Official cash rate unchangedCasting vote made by Governor with a 3-3 vote split among Committee membersRBNZ forecast OCR to reach 3% by end of 2026