RBNZ Assistant Governor Karen Silk says Monetary Policy Committee will keep an eye on price setting behaviour and world dynamics that could potentially influence how the Official Cash Rate moves

While they don’t all necessarily align on whether the Official Cash Rate (OCR) will be held or increased in 2026, economists do agree it will take a global shock or nasty surprise to get the Reserve Bank to shift the OCR.

On Wednesday, the OCR was cut from 2.25% from 2.50% with the central bank saying any future moves would depend on how the outlook for medium-term inflation and the economy evolve.

But it’s important to note November’s Monetary Policy Statement doesn’t specify that the next move will be down.

This comes as one member of the Reserve Bank’s (RBNZ) six-member Monetary Policy Committee voted this week to keep the OCR at 2.50%.

Acting RBNZ Governor Christian Hawkesby said at a Finance and Expenditure Committee meeting on Thursday this particular member had more of an emphasis on the upside risks to inflation and the economy, and a different view around timing.

“That member who dissented was in the camp of leaving the Official Cash Rate unchanged at this meeting but leaving the door open to lower it in the future if required,” Hawkesby said.

This was the last OCR review for 2025 and over the next few months, Monetary Policy Committee members will be watching how things like personal consumption, labour numbers and business confidence look.

Then they’ll review the OCR for the first time in 2026, with new Governor Anna Breman on board, on February 18.

So what will be the dramatic thing that would make the central bank cut the OCR?

Speaking to interest.co.nz on Thursday, RBNZ Assistant Governor Karen Silk, a member of the Monetary Policy Committee, said global growth hasn’t fallen as much as the RBNZ anticipated when US President Donald Trump made his "Liberation Day" announcement in April.

“There’s different reasons behind that - some of it was front loading of inventory going into the US at those lower prices, so the pass through of the tariffs through to the US consumer has been a little bit less than the tariff numbers might actually suggest," Silk said.

Silk said the artificial intelligence (AI) investment in the US, and the demand for parts from Asia is a technology investment story that has helped underpin growth. However, she noted "there is a question mark around whether that’s overdone and whether some of the P/E [price-to-earnings] valuations on those technology stocks" are too high, and whether they're going to deliver acceptable returns on investment for investors in the near-term.

This issue involved some potential disruption to financial markets, she said.

New Zealand is not a heavy technology economy but it would have indirect effects for us, Silk said.

If Asian growth slows dramatically as a consequence of something like that then you could potentially expect to see demand for some of our exports “come off at that point as well”, Silk said.

“We’re very aware of the dynamics that are ... around the world and the potential influence that they can have here on New Zealand as well because that creates uncertainty.”

And when there was uncertainty, consumers and businesses - everybody pulls back up again, Silk said.

“We’re very aware of that but with where the Official Cash Rate is now, there’s still room. We’ve still got room to move and address the situation should those sorts of things arise.”

Silk said it was a matter of being aware and feeding that into the Monetary Policy Committee's views as we go into 2026.

And what could lead to hiking the OCR up?

Silk said one of the things the RBNZ called out in the Monetary Policy Statement was keeping an eye on inflation.

The RBNZ is charged with maintaining inflation between 1% and 3%, and it specifically targets 2%.

Annual inflation, as measured by the consumer price index (CPI), was 3% in the September quarter.

While this latest figure is on the higher side of this band, the RBNZ's Monetary Policy Committee expected this - with the committee previously noting inflation was projected to reach 3% in that quarter.

On Wednesday, acting RBNZ Governor Christian Hawkesby said 2026 would be a period where inflation falls towards their 2% target and one where the economic activity is recovering.

Silk spoke on Thursday about people’s perceptions of inflation.

“We’ve gone through a period of high inflation and does that residual memory of that still sit in the business mindset?”

Silk said people can be more sensitive to that and that can change price setting behaviour as well.

“What we want to see is price setting behaviour by businesses that is aligned to a 2% CPI, not something that is sitting substantially higher than that."

“We’re just cognisant of keeping an eye on that as well because we need to see that be aligned with the mid-point of our target.”

Hawkesby’s final words at Wednesday’s press conference were upbeat.

“What does 2026 hold? It is going to be a period where inflation is falling towards our 2% target and one where the economic activity is recovering. That is a really good mix to have."

“That is a position that many central banks around the world would be very fond of sharing with us,” Hawkesby said.

“So we are going into the year in a good position and we’ve got an OCR track which is going to give the Monetary Policy Committee a lot of optionality going into next year to continue that task of keeping laser focused on medium-term inflation at the mid-point of the target."

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