The Reserve Bank of New Zealand (RBNZ) kept its Official Cash Rate (OCR) unchanged at 2.25% today, signaling that monetary policy will remain accommodative for the time being as the economy recovers from a prolonged downturn. The decision was unanimous and widely expected by market participants.
Key points from the RBNZ statement:
- Annual CPI inflation rose to 3.1% in Q4 2025, slightly above the 1-3% target band
- The Committee is confident inflation will fall to the 2% midpoint over the next 12 months
- Significant spare capacity remains in the economy, with unemployment at 5.4%
- Economic recovery is broadening across manufacturing, construction, and retail
- Risks to the inflation outlook are viewed as balanced
- The RBNZ’s updated OCR forecast signals potential tightening by late 2026 or early 2027
Link to the February 2026 RBNZ Monetary Policy Statement
This was the first Monetary Policy Statement under new Governor Anna Breman, who took over after the departures of former Governor Adrian Orr and chairman Neil Quigley. It was also the RBNZ’s first rate decision since cutting the OCR by 25 basis points in November 2025 – a move that now appears to have been the final cut in its easing cycle that started back in August 2024.
In its statement, the RBNZ acknowledged that annual CPI inflation increased to 3.1% in the December 2025 quarter, sitting just above the top of the 1-3% target band. However, the Committee expressed confidence that with significant excess capacity in the economy, inflation will return to around the 2% midpoint over the next year. Core inflation measures remain within the target range, and subdued wage growth is helping to keep underlying price pressures in check.
On the economic outlook, the RBNZ noted that economic growth is broadening across sectors, supported by low interest rates and strong export prices for dairy and meat. GDP rose 1.1% in the September quarter after falling 1.0% in the June quarter, though the Committee cautioned that measured GDP data has been more volatile than usual due to temporary factors and measurement issues.
Perhaps the most market-moving element of today’s release was the updated OCR forecast track. The RBNZ brought forward its expectation for the first rate hike to late 2026 or early 2027, compared to a mid-2027 timeline projected in November. However, the projected tightening cycle remains shallower than what markets had priced in, with the cash rate expected to reach just 3.0% by 2028. Prior to the decision, markets had about 1.5 hikes priced in by year-end.
Governor Breman also announced that the RBNZ will increase its monetary policy meetings to eight per year starting in 2027, a move aimed at improving transparency and accountability.
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Market Reactions
New Zealand dollar vs. Major Currencies: 15-min
NZD Overlay 15-min – Chart Faster with TradingView
The Kiwi sold off sharply across the board following the release. NZD/USD fell as much as 0.6%, dropping back below the psychologically important 0.6000 level to hit a nearly two-week low. The move lower was driven by the dovish surprise in the RBNZ’s rate forecast track, which fell short of the more hawkish repricing that markets had built up heading into the meeting.
The market had been speculating that the RBNZ would follow the Reserve Bank of Australia’s lead and signal an earlier start to its hiking cycle. Instead, the RBNZ pushed back against that narrative, indicating that only about a 50% probability of a single hike this calendar year was warranted. Implied pricing for rate hikes by year-end was quickly trimmed by traders, with only one hike now favored, down from two before the decision.
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