New Zealand Central Bank Hikes Rate For First Time Since 2023

(RTTNews) - The Reserve Bank of New Zealand raised its benchmark interest rate for the first time in more than three years to bring inflation to target and hinted at further tightening.

The Monetary Policy Committee, governed by Anna Breman, decided to lift the Official Cash Rate by 25 basis points to 2.50 percent. This was the first hike since May 2023.

The bank has lowered its benchmark rate by 325 basis points since August 2024, bringing it to the lowest since mid-2022.

"A 25 basis point OCR increase was considered consistent with the mandate of ensuring low and stable inflation, while avoiding unnecessary instability in output, employment, interest rates and the exchange rate," the bank said in a statement.

The bank expects economic recovery to resume in the September quarter as the impact of the Middle East conflict fades and confidence improves, and spare capacity is expected to gradually decline. Annual headline inflation peaked at 3.9 percent in the June quarter, and is projected to fall to 3.3 percent in the September quarter. Inflation is forecast to fall to around 2 percent over the coming twelve months.

This was slower than the previous projection largely due to lower oil prices and reduced pass-through to other consumer prices.

The committee emphasized the outlook for medium-term inflation pressures depend on the extent to which recent cost increases feed through into higher prices.

"With inflation still above target and economic activity expected to strengthen, some further reduction in monetary stimulus is likely to be required to return inflation to the 2 percent target mid-point," the bank said.