Overview
- The Reserve Bank of New Zealand’s Monetary Policy Committee unanimously raised the Official Cash Rate by 25 basis points to 2.50%, a move that closed a multi-year easing cycle and was announced on July 8.
- Chief economist Paul Conway said higher oil costs from the Middle East conflict have increased upside risk to the inflation outlook and that the bank will act again if those cost pressures become entrenched.
- The RBNZ’s forecasts show inflation peaking well above target at about 3.9% in the June quarter and only returning toward the 2 percent midpoint by 2027 if no further shocks occur.
- The bank warned firms are now more likely to pass on higher input costs and less likely to cut prices later, a shift reinforced by NZIER survey data showing a sharp rise in firms reporting higher costs.
- Markets reacted to the conditional tightening message with a firmer New Zealand dollar and the next policy moves will hinge on oil-price trends, pricing behaviour and how quickly spare capacity eases pressure on prices.