The Reserve Bank of New Zealand left its official cash rate (OCR) unchanged at 2.25% on Wednesday and indicated that monetary policy will remain accommodative for an extended period. The decision follows a 25 basis-point cut implemented in late November.
The Monetary Policy Committee reported that annual consumer price inflation rose to 3.1% in the December 2025 quarter, placing headline inflation slightly above the bank's 1% to 3% target range. The committee attributed the higher reading to stronger food prices, rising electricity costs and increased local council rates.
Officials said they expect headline inflation to return to the target band in the March quarter and to ease toward the 2% midpoint over the coming 12 months. That projected decline is expected to be supported by spare capacity in the economy, modest wage growth and contained measures of core inflation.
The central bank noted that rate reductions implemented since 2024 have been helping to underpin a gradual economic rebound. Growth has broadened to include manufacturing and construction, with improvements also visible in some retail segments.
Economic activity has started to recover, the committee said, helped by strong export prices and earlier monetary easing that began in August 2024. Gross domestic product expanded by 1.1% in the September quarter, following a contraction in the June quarter, but officials warned that volatility in the data could overstate the extent of the momentum.
At the same time, the RBNZ highlighted persistent weaknesses in the housing market and restrained household spending as ongoing drags on the economy, even as measures of firms' investment intentions showed improvement.
When assessing the inflation outlook, the committee described risks as broadly balanced. It pointed to uncertainty around global trade policy, potential investment cycles related to artificial intelligence and heightened geopolitical tensions as elements that could influence future outcomes.
The RBNZ reiterated the danger of tightening policy too early, saying premature increases in rates could derail the recovery. The bank signalled that policy would gradually normalise only as inflation sustainably moves back to the target midpoint.
Key takeaways:
- The OCR remains at 2.25% following a 25 bps cut in late November.
- Headline inflation rose to 3.1% in the December 2025 quarter but is expected to fall into the target band and move toward 2% over 12 months.
- Economic recovery is underway yet uneven, supported by export prices and earlier rate cuts while housing and household spending lag.