The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate unchanged at 2.25%, delivering a balanced and cautious statement. The Bank’s policy remains accommodative, and the tone was not hawkish, but subtly more firm than in November, reflecting improved growth prospects and greater confidence that inflation is returning toward target.
Monetary policy stance: accommodative but conditional
The Committee emphasized that monetary conditions will remain supportive “for some time.” Policymakers agreed that withdrawing stimulus too early could jeopardize the recovery and risk inflation falling back below the midpoint of the 1–3% target range.
Key points from the statement:
- OCR maintained at 2.25% (unanimous decision).
- Inflation recently exceeded the 1–3% target range, but a quick return within the band is expected.
- Inflation is projected to stabilize near 2% (the midpoint of the target) within the next 12 months.
- The economy still shows significant spare capacity (negative output gap).
- Wage growth remains moderate; core inflation is under control.
- Policy normalization will be gradual and dependent on further strengthening of the recovery.
The updated OCR path was slightly revised higher compared to November, suggesting the possibility of an earlier rate hike than previously assumed. However, this information did not support the NZD, which fell sharply during the session.
Inflation outlook: returning toward target
Annual CPI inflation rose to around 3.1% at the end of 2025, exceeding the upper bound of the target range. The increase was driven mainly by food prices, electricity costs, and volatile tradable goods components. The Bank remains confident that inflation will return toward 2%. Risks to inflation are assessed as balanced.
Growth and labor market: recovery underway but uneven
The RBNZ described the recovery as early but stable. Growth is supported by high commodity prices and previous rate cuts, though momentum remains uneven across sectors. GDP is rebounding after a contraction in mid-2025, and unemployment remains elevated (around 5.4%) but is stabilizing.
Press conference – key remarks from Governor Anna Breman
Governor Anna Breman maintained a cautious tone and distanced herself from interpretations suggesting an imminent start to a hiking cycle. Breman has served as RBNZ Governor since December last year.
Key messages:
- The OCR path is conditional, not a commitment.
- A rate hike by year-end is possible, but not planned.
- The Bank does not intend to raise rates until it sees clearly stronger growth and inflation pressure.
- Any tightening would be gradual.
- A fourth-quarter hike is not fully embedded in projections.
- The housing market is not expected to experience a sharp surge in prices.
The communication clearly aimed to prevent the market from pricing in an aggressive tightening cycle.
Market reaction
Despite the slightly higher rate path, the market interpreted the message as dovish rather than hawkish. The New Zealand dollar weakened noticeably after the decision.
- NZD was the weakest major currency of the day, falling around 0.6–0.9% against the currency basket.
- NZDUSD declined by approximately 0.92% during the session.
The market reaction suggests that investors had been positioned for a stronger tightening signal and instead received a message emphasizing patience and data dependence.
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