New Zealand’s central bank has opted to keep interest rates steady despite the rising threat of inflation.
The Reserve Bank of New Zealand announced after its latest review on Wednesday that it would keep the official cash rate (OCR) on hold at 2.25 per cent.
Domestically, both headline inflation, at 3.1 per cent, and ‘non-tradeable inflation’ at 3.5 per cent, are already outside the RBNZ’s target band of 1-3 per cent. Non-tradeable inflation is a measure of price growth for goods and services produced and consumed inside the domestic economy, and can indicate how ‘sticky’ inflation is likely to be.
Given the high price of fuels due to the US-Israeli war with Iran, both inflation measures are expected to get worse in New Zealand in the near term
RBNZ’s balancing act
However, given New Zealand's tender economic state, RBNZ Governor Anna Breman's committee opted by consensus to keep official interest rates lower for now.
If near term inflation proved to be temporary, rates could be lifted to a more neutral setting, the RBNZ board said.
"However, any signs of significant second-round inflationary effects or increases in medium-term inflation expectations would require decisive and timely increases …to re-anchor inflation expectations," the statement said.
At 5.4 per cent, New Zealand's unemployment rate is at an 11-year high, while annual GDP growth was just 0.2 per cent in 2025.
Not a COVID re-run, says RBNZ Governor
The decision was just the second led by Breman, a Swedish banker who joined the RBNZ in late 2025, and expected by economic analysts
Breman acknowledged inflation was likely to jump in the short-term due to the fuel shock, but cautioned against comparing the situation to the COVID-19 pandemic. "Back then, demand was growing strongly, adding to inflation pressure," she said.
"The committee's decision to hold the OCR balances the potential benefits of responding pre-emptively to the risk of higher medium-term inflation against the cost of unnecessarily stifling the economic recovery."
In contrast, the Reserve Bank of Australia has already increased rates twice in 2026, taking the official cash rate to 4.1 per cent, with Commonwealth Bank economists expecting another lift at the RBA’s May meeting.
