Official cash rate on hold

The Reserve Bank of New Zealand has held the official cash rate (OCR) at 2.25 per cent as it expects inflation to fall over the next 12 months.

Its monetary policy committee made the decision on February 18 after noting annual consumer price inflation was slightly above its target band of one to three per cent at the end of 2025. 

The bank says the economy is at an early stage in its recovery, with ongoing strength in commodity prices, economic activity in the agricultural sector and regional New Zealand remaining strong. 

However, while residential and business investment is increasing, households remain cautious in their spending. 

“In response to previous cuts in the OCR, economic growth is broadening across sectors of the economy, such as manufacturing, construction and some retail,” adds the bank. “Economic growth is expected to increase over 2026. 

“Inflation is most likely returning to within the committee’s one to three per cent target band in the current quarter. 

“The committee is confident that inflation will fall to the two per cent midpoint over the next 12 months due to spare capacity in the economy, modest wage growth and core inflation within the target band.”

The committee agreed to hold the OCR at 2.25 per cent and says if the economy evolves as expected, monetary policy is likely to remain accommodative for some time. 

“The committee will continue to assess incoming data carefully,” the bank continues. “As the recovery strengthens and inflation falls sustainably towards the target midpoint, monetary policy settings will gradually normalise.”