RBNZ Holds Rate Steady, Warns of Sooner Hikes

Reserve Bank of New Zealand Holds Rate Steady in Split Decision

The Reserve Bank of New Zealand (RBNZ) kept the official cash rate at 2.25% in a tight vote, with three members favoring a hike and three voting to hold. Governor Anna Breman cast the deciding vote to hold.

The central bank warned that rates will likely need to rise sooner and more than previously expected due to an energy shock from the Middle East conflict. Inflation remains above the 1-3% target at 3.1%, and near-term inflation expectations are rising.

Market Reaction and Outlook

The New Zealand dollar jumped 0.7% against the US dollar, and two-year swap rates rose 3 basis points. Markets now price a 72% chance of a rate hike in July, up from 68% before the decision. Economists expect at least two more hikes by year-end.

The RBNZ forecasts inflation to peak at 4.3% in the September quarter, with unemployment rising to 5.4% and staying elevated until mid-2027. While the economy has exited recession, growth remains weak amid global uncertainty and tight fiscal policy.