New Zealand Holds Key Rate As Expected

(RTTNews) - The Reserve Bank of New Zealand left its benchmark interest rate unchanged on Wednesday citing elevated level of uncertainty and near-term risks to inflation.

The Monetary Policy Committee, governed by Christian Hawkesby, decided to hold the Official Cash Rate at 3.25 percent.

The bank has paused the easing cycle for the first time since it started cutting rates in August 2024. The current borrowing cost is the lowest level since August 2022.

Given the elevated level of uncertainty and the benefits of waiting until August in light of near-term inflation risks, policymakers called for keeping the OCR unchanged at this meeting.

Some members highlighted that waiting would give time to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.

Nonetheless, the committee said it expected to ease the monetary policy further if inflation eases as estimated.

The bank forecast inflation to rise further in the June and September quarters, towards the top of the inflation target band. As the near-term increase in inflation is driven by a pick-up in food prices and administered prices, it is expected to fall over late 2025.

Further, inflation is expected to return to around the mid-point of the target band by early 2026 as significant spare capacity in the economy further reduces domestic inflation pressures.

JP Morgan economist Ben Jarman said the firm expects the bank to hold rate in the second half of 2025 and resume easing in the first half of 2026.

The economist said today's statement does not disrupt near-term outlook and could see more squeezed out of August, which is quite fully-priced for another cut.