The Reserve Bank of New Zealand on July 8 raised the official cash rate by 25 basis points to 2.50% from 2.25%, its first increase in three years. It said the move was consistent with returning inflation to the 2% midpoint of its target while reducing the degree of monetary stimulus.
The Monetary Policy Committee said the decision was unanimous and that further increases appear likely, although the timing is highly uncertain and will depend on incoming data, price-setting behaviour, and the absorption of spare capacity. The bank said inflation had been above the target band before the recent Middle East shock and that non-tradables inflation had remained persistent despite spare capacity.
It said annual headline inflation was expected to have peaked at 3.9% in the June 2026 quarter and to slow to 3.3% in the September quarter, while still returning to target only by mid-2027. The committee also said domestic financial conditions had eased recently through lower wholesale rates and a weaker trade-weighted New Zealand dollar, citing that easing as a factor in the rate increase.
The bank noted March quarter GDP growth of 0.8%, slower activity in the June quarter based on high-frequency indicators, house prices down 0.4% from a year earlier in May, subdued housing activity, and contracting residential investment, while projecting growth to resume in the September quarter. Separately, the committee approved operational changes to fully divest its remaining LSAP holdings by June 30, 2027.