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The Bank of New Zealand raised interest rates by 25 basis points as expected and stated that it will continue to raise interest rates to curb inflation

2026-07-08·newswire-us-stock-031250

The Bank of New Zealand raised interest rates by 25 basis points as expected and stated that it will continue to raise interest rates to curb inflation.

The New Zealand Bank of New Zealand raised the official overnight call rate (OCR) by 25 basis points to 2.50% on Wednesday, making it clear that although the economic recovery remains fragile, further interest rate increases are still necessary to bring inflation back to the target range. This decision is in line with market expectations.

Of the 28 economists previously surveyed by the media, 22 predicted that the New Zealand Bank of New Zealand would raise interest rates by 25 basis points. Since August 2024, the Bank of New Zealand has cut interest rates by a cumulative 325 basis points to support an economy that is still struggling to regain momentum as inflation recedes.

However, the oil shock associated with the Iran war is expected to push inflation well beyond the central bank's 1%-3% target range, forcing policymakers to raise interest rates earlier while the economic recovery remains shaky.

"Given that inflation remains above target and economic activity is expected to strengthen, further tapering of monetary stimulus may be needed to bring inflation back to the 2% target midpoint," the RBNZ said in an accompanying Monetary Policy Review statement.

The New Zealand dollar rose 0.4% to $0.57 and the two-year interest rate swap climbed 5 basis points to 3.3801%. The market has almost fully priced in expectations of another interest rate hike in October.

The central bank said future interest rate decisions will depend on subsequent data, pricing behavior, and the impact of the intensity of economic activity on medium-term inflationary pressures. Annual inflation is expected to have reached a high of 3.9% in the June 2026 quarter and fall to 3.3% in the September quarter, the statement said.

Inflation is expected to fall back to close to 2% in 2027. The Reserve Bank of New Zealand forecast in May that annual inflation would hit a high of 4.3% in the September quarter and return to the midpoint of its 2% target in mid-2027.

The statement pointed out that the downward revision of the forecast "mainly reflects the reduction of the direct price impact caused by lower oil prices and the weakening of the cost transmission effect to the prices of other consumer goods." The minutes of the meeting pointed out that the committee unanimously believed that although further interest rate hikes at the next meeting are more likely, the specific timing still remains highly uncertain.

New Zealand's economy returned to growth in the second half of 2025, but the war in the Middle East and the resulting energy shock seemed to have weakened the recovery momentum. With the current pullback in oil prices, policymakers expect households and businesses to receive some relief, helping to support economic growth while easing inflationary pressures.

New Zealand's shift to tightening policy mirrors the overall trend among global central banks: major central banks, including the European Central Bank and the Australian Reserve Bank of Australia, have raised interest rates, while the Federal Reserve has adopted a more hawkish tone as policymakers take action to curb inflation. (over)

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Full text

The Bank of New Zealand raised interest rates by 25 basis points as expected and stated that it will continue to raise interest rates to curb inflation

The New Zealand Bank of New Zealand raised the official overnight call rate (OCR) by 25 basis points to 2.50% on Wednesday, making it clear that although the economic recovery remains fragile, further interest rate increases are still necessary to bring inflation back to the target range. This decision is in line with market expectations. Of the 28 economists previously surveyed by the media, 22 predicted that the New Zealand Bank of New Zealand would raise interest rates by 25 basis points. Since August 2024, the Bank of New Zealand has cut interest rates by a cumulative 325 basis points to support an economy that is still struggling to regain momentum as inflation recedes. However, the oil shock associated with the Iran war is expected to push inflation well beyond the central bank's 1%-3% target range, forcing policymakers to raise interest rates earlier while the economic recovery remains shaky. "Given that inflation remains above target and economic activity is expected to strengthen, further tapering of monetary stimulus may be needed to bring inflation back to the 2% target midpoint," the RBNZ said in an accompanying Monetary Policy Review statement. The New Zealand dollar rose 0.4% to $0.57 and the two-year interest rate swap climbed 5 basis points to 3.3801%. The market has almost fully priced in expectations of another interest rate hike in October. The central bank said future interest rate decisions will depend on subsequent data, pricing behavior, and the impact of the intensity of economic activity on medium-term inflationary pressures. Annual inflation is expected to have reached a high of 3.9% in the June 2026 quarter and fall to 3.3% in the September quarter, the statement said. Inflation is expected to fall back to close to 2% in 2027. The Reserve Bank of New Zealand forecast in May that annual inflation would hit a high of 4.3% in the September quarter and return to the midpoint of its 2% target in mid-2027. The statement pointed out that the downward revision of the forecast "mainly reflects the reduction of the direct price impact caused by lower oil prices and the weakening of the cost transmission effect to the prices of other consumer goods." The minutes of the meeting pointed out that the committee unanimously believed that although further interest rate hikes at the next meeting are more likely, the specific timing still remains highly uncertain. New Zealand's economy returned to growth in the second half of 2025, but the war in the Middle East and the resulting energy shock seemed to have weakened the recovery momentum. With the current pullback in oil prices, policymakers expect households and businesses to receive some relief, helping to support economic growth while easing inflationary pressures. New Zealand's shift to tightening policy mirrors the overall trend among global central banks: major central banks, including the European Central Bank and the Australian Reserve Bank of Australia, have raised interest rates, while the Federal Reserve has adopted a more hawkish tone as policymakers take action to curb inflation. (over)

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