RBNZ raises official cash rate 25 bp to 2.50% in July, flags more hikes ahead

The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by 25 basis points to 2.50% at its July monetary policy review, and flagged that further tightening was likely at coming meetings as inflation risks from the Middle East shock persist. The Monetary Policy Committee reached the decision by consensus.

The bank projected annual inflation to peak at 3.9% in the June 2026 quarter before returning to the 2% target midpoint around the middle of 2027. The July move was the RBNZ's first increase in the OCR in more than three years.

INFLATION PATH AND EXTERNAL SHOCK

The committee said that although energy prices had decreased, the effects of the Middle East shock would linger for some time and the outlook for medium-term inflation pressures remained uncertain. Following the partial reopening of the Strait of Hormuz, global oil prices had fallen markedly and near-term inflation pressures had eased, the committee said.

The projected 3.9% peak is above the RBNZ's 1–3% target range. The committee said the outlook for medium-term inflation pressures depends on the extent to which recent cost increases feed through into higher prices.

The committee assessed that the OCR remained accommodative even after the increase. The consensus decision followed the May meeting, when Governor Anna Breman used her casting vote to break a three-three split and hold the OCR at 2.25%.

GUIDANCE FOR COMING MEETINGS

The committee said that while further OCR increases appear likely at upcoming meetings, their timing is highly uncertain. After the decision, economists and financial markets expected at least two further increases before the end of the year, RNZ reported.

The committee said future decisions would depend on how incoming data, price-setting behaviour and the strength of economic activity affect medium-term inflation pressures.