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Rates on hold in New Zealand even as inflation grows

Apr 8, 2026

A file photo of Anna Breman — The Reserve Bank of New Zealand, led by governor Anna Breman, has kept interest rates on hold. -AAP Image

Inflation is on the march in New Zealand - like seemingly everywhere - but the central bank is holding the line on rates.

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The Reserve Bank of New Zealand (RBNZ) opted not to lift the official cash rate (OCR) beyond 2.25 per cent at its latest review on Wednesday.

Both headline inflation, at 3.1 per cent, and non-tradeable inflation, at 3.5 per cent, are already outside the bank's target band of 1-3 per cent.

They are also forecast to get worse, given the swollen price of fuels due to the US-Israeli war with Iran.

However, given New Zealand's tender economic state, governor Anna Breman's committee opted by consensus to keep the OCR at a stimulatory level - for now.

"If the increase in near-term inflation is largely temporary, the committee envisages gradually moving the OCR to more neutral levels as activity recovers and near-term inflationary pressures dissipate," a statement read.

"However, any signs of significant second-round inflationary effects or increases in medium-term inflation expectations would require decisive and timely increases in the OCR to re-anchor inflation expectations."

At 5.4 per cent, New Zealand's unemployment rate is at an 11-year high, while annual GDP growth was just 0.2 per cent in 2025.

The decision was just the second led by Ms Breman, the Swedish banker who joined the RBNZ in late 2025, and anticipated by analysts, including the NZ Institute of Economic Research's "shadow board".

That grouping of academics, bankers and economists cited "the high degree of uncertainty over the oil price shock in the wake of the US-Israel war against Iran" as a reason to wait.

"It's impossible to say anything sensible at this stage other than the spread of potential outcomes is one of the greatest that we have ever seen," BNZ head of research Stephen Toplis said.

Ms Breman acknowledged inflation was likely to jump in the short-term due to the fuel shock, but cautioned against comparing the situation to the COVID-19 pandemic.

"Back then, demand was growing strongly, adding to inflation pressure," she said.

"The committee's decision to hold the OCR balances the potential benefits of responding pre-emptively to the risk of higher medium-term inflation against the cost of unnecessarily stifling the economic recovery."