RBNZ holds OCR at 3.75% as inflation concerns persist despite economic headwinds
The Reserve Bank of New Zealand has kept the official cash rate unchanged at 3.75% for the third consecutive review, citing persistent inflation pressures that continue to outweigh concerns about economic softening. The central bank’s cautious stance reflects ongoing challenges in bringing inflation back to its target range despite mounting evidence of economic cooling.
- OCR held at 3.75% for third straight meeting
- Annual inflation remains at 3.2%, above RBNZ’s 1-3% target band
- GDP growth slowed to 0.1% in Q4 2025
- Unemployment rate climbed to 4.8% in December quarter
- Housing market showing signs of further softening
RBNZ Governor Adrian Orr emphasized that inflation remains the primary concern despite mounting evidence of economic weakness. “While we acknowledge the economy is slowing, core inflation measures continue to show persistence that requires our ongoing vigilance,” Orr said during the post-meeting press conference.
The decision comes as New Zealand grapples with a complex economic environment. Annual CPI inflation of 3.2% remains stubbornly above the central bank’s 1-3% target range, driven largely by services inflation and sticky domestic price pressures.
Economic growth has virtually stalled, with GDP expanding just 0.1% in the December quarter. The unemployment rate has risen to 4.8%, the highest level since early 2022, while business confidence surveys continue to show pessimism across most sectors.
Balancing act proves challenging
The RBNZ’s monetary policy committee noted that recent data presents conflicting signals. While labor market softening and reduced consumer spending point toward disinflationary pressures, services inflation and wage growth remain elevated.
“The Committee agreed that maintaining the current restrictive stance was appropriate given the mixed signals in the data,” the central bank stated in its policy statement. Core inflation measures, which strip out volatile items, continue to run above 3%.
Financial markets had been divided on the RBNZ’s likely move, with economists split between expecting a hold or a 25 basis point cut. ASB Bank chief economist Nick Tuffley said the decision reflects the central bank’s data-dependent approach.
According to RBNZ projections, the finding showed inflation is expected to return to target by mid-2026, but the path remains uncertain given global economic volatility.
The housing market continues to show signs of adjustment, with national house prices down 8% from their 2021 peaks. Mortgage rates remain elevated, with most banks offering rates above 6% for standard home loans.
Forward guidance remains cautious
The RBNZ signaled it would maintain a restrictive monetary policy stance until there is greater confidence that inflation pressures are sustainably declining. The central bank’s next review is scheduled for April 23.
Governor Orr indicated that any future policy changes would be gradual and data-driven. “We remain prepared to adjust policy as conditions evolve, but we need to see consistent evidence that inflation is on a sustainable path back to target,” he said.
Market economists now expect the first OCR cut may not come until the second half of 2026, later than previously anticipated. The New Zealand dollar strengthened following the announcement, reflecting expectations of continued tight monetary policy.
Business groups have called for more decisive action to support economic growth, but the RBNZ maintains that achieving price stability remains its primary mandate. The central bank’s patient approach mirrors strategies adopted by other central banks globally as they navigate similar inflationary challenges.
