New Zealand Reserve Bank Expected to Maintain Interest Rates Amid Inflation Concerns

Westpac Bank has indicated that the Reserve Bank of New Zealand is set to announce its monetary policy statement today, with market expectations that the official cash rate (OCR) will remain unchanged at 2.25%. According to Jin10, the surge in refined oil prices following the outbreak of war in Iran is anticipated to push New Zealand's overall inflation rate above 4%, maintaining high levels throughout most of 2026. Economic growth forecasts are expected to be significantly revised downwards, with GDP growth for 2026 currently projected at 1.8%-2.0%, compared to the February forecast of 2.8%. The unemployment rate is anticipated to rise to approximately 5.5% by the end of the year. The terminal OCR rate is projected to increase to around 3.2%, with the December 2026 rate forecast at approximately 2.8%, suggesting two to three rate hikes this year. The core disagreement within the Monetary Policy Committee centers on the timing of rate hikes rather than the direction. The bank believes that the rationale for maintaining rates today includes limited hard evidence of second-round inflation effects, high uncertainty regarding the duration of the war, and the risk that premature policy tightening could be counterproductive if the economic slowdown deepens. The second quarter CPI data will serve as the first substantial test to determine whether inflation is spreading beyond energy costs.