Central Bank holds rates in May

Latest bank decision: At its meeting on 27 May, the Central Bank decided to hold the Official Cash Rate (OCR) at 2.25%, following total rate cuts of 325 basis points from August 2024 to November 2025.

Bank takes wait-and-see approach: On one hand, further rate cuts would have been imprudent given that inflation is currently above the Bank’s 1.0–3.0% target range and is expected to move further above target later this year. On the other hand, the Bank commented that “core inflation, wage growth, and medium- to long-term inflation expectations remain consistent with inflation returning to the 2% target mid-point over the medium term”. This, coupled with mild economic activity, dissuaded the Bank from hiking. Uncertainty over the severity and duration of conflict in the Middle East was a further reason to take a wait-and-see approach.

Hike in store later this year: The Bank hinted that its next policy move was likely to be a hike. All of our panelists expect the Bank to tighten its monetary stance before the end of this year.

Panelist insight: On the outlook, ANZ analysts said: “We continue to forecast three hikes this year, in July, September and October. We have open minds on whether the OCR will need to go north of 3%, but there’s a lot of water to flow under that bridge. The data will decide that in the fullness of time, not the RBNZ’s forecasts here and now.” Goldman Sachs analysts said: “Looking ahead, we now expect the RBNZ to lift the policy rate 25bp at each of the July and September meetings to 2.75% (prior +25bp hikes in Dec26/Feb27/May27). Beyond September, we expect the outlook for both inflation and the labour market will be sufficiently weak to keep the RBNZ on the sideline. We view the balance of risks as skewed to a slower pace of tightening, given the large amount of slack in the economy and the relatively low starting point for core inflation.”

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