Bank economists expect the RBNZ to keep the Official Cash Rate on hold on Wednesday as inflation uncertainty clouds the timing of future hikes

Bank economists think it's unlikely the Reserve Bank (RBNZ) will raise the Official Cash Rate (OCR) next week, instead waiting to see where inflation goes next before it starts nudging the OCR up.

The OCR has remained unchanged at 2.25% since the RBNZ reduced it from 2.5% last November. 

At its Monetary Policy Review (MPR) in April, the Reserve Bank cautioned that depending on how the country reacted to annual inflation, “decisive and timely” OCR increases could be required going forward. 

The central bank’s April MPR forecast that annual inflation would be 3% in the March quarter and 4.2% in the June quarter.

Annual inflation, as measured by the Consumer Price Index (CPI), came in at 3.1% in March, for the second consecutive quarter. This was slightly above the RBNZ’s projections and is still higher than the RBNZ’s target inflation range of 1% to 3%, with a midpoint of 2%. 

ANZ, ASB, BNZ, Westpac and Kiwibank economists have different views on the specific timing of future OCR hikes. 

But they all broadly agree that the RBNZ will be reluctant to raise the OCR until the central bank has a better idea of the direction as well as pace that inflation is going, given the major economic volatility currently affecting both New Zealand and the rest of the world. 

That means an OCR hike on Wednesday, May 27, isn’t completely out of the question, but economists aren’t holding their breath over it. Wednesday's OCR review comes the day before the Government's election year budget.

'Who’d want to be a Monetary Policy Committee member?'

In a preview of the OCR decision, BNZ head of research Stephen Toplis said the RBNZ will want to buy itself more time before raising rates.

“About the only thing we can conclude with certainty is that the RBNZ will be accused of tightening too quickly or too much and then be blamed for clobbering the economy, or it will be charged with tightening too late and be at fault for any resulting inflation. Who’d want to be a Monetary Policy Committee member?” he said.

Toplis also noted that whatever decision the RBNZ makes around the OCR will have the largest impact 12 to 18 months down the track. Given that it’s difficult to paint a picture of what inflation and the general economy will look like then, “the chances of getting it wrong are multiplied,” he said.

Westpac chief economist Kelly Eckhold said the OCR should be increased at the May meeting next week, but thinks the central bank will choose to hold instead.

“We expect a live debate at the Monetary Policy Committee on the option to raise the OCR to 2.5%, with the decision likely going to a vote,” he said.

Eckhold’s reasoning for why the RBNZ should raise the OCR boils down to how much the inflation outlook has changed since the second half of 2025, when the OCR was cut below 3%.

“With the benefit of hindsight, this should not have occurred,” he said.

“A key element of the argument we made to justify the 50bp cut last October was that it was an insurance move that could be reversed if the outlook changed. The outlook clearly has changed now that headline inflation is set to move above 4% for the balance of 2026. It would be much better to have the OCR near neutral today. Hence, beginning to get there now seems a pressing priority.”

'July as the sweet spot'

According to ASB economists Wesley Tanuvasa and Jane Turner, while the OCR needs to go higher, the timing for doing so is hard to pin down.

ASB favours OCR hikes occurring sooner rather than later – with Tanuvasa and Turner describing July as the “sweet spot” as they believe it gives the RBNZ enough time to watch inflation without it running away on the central bank.

“We do not rule out a hike next week, but data on the run-up to May have been mixed and not sparked added urgency,” they said.

“We would keep an eye out for any commentary on members’ assumptions around the persistence and pervasiveness of the Middle East supply shock and the sensitivity of inflation expectations. If the members deem the supply shock to be temporary, that would lean into more gradualist policymaking. If others deem the supply shock to be more persistent or pervasive, that would lean into more proactive policymaking.”

Statistics NZ’s latest Selected Price Indexes (SPI) figures, which were released earlier in May, show petrol prices jumped 12.6% while diesel prices increased 36.6%, from March to April. 

These major increases were still lower than the petrol and diesel price increases from February to March that were shown in March’s SPI data, with petrol going up 18.6% and diesel jumping 42.6%. 

'We can only hope they remain cautious and willing to wait, worry and watch'

Kiwibank chief economist Jarrod Kerr said NZ’s economic recovery has hit yet another speed bump, but it’s still too early to see the full impacts of the ongoing supply shock.

“This is a supply shock that is causing demand destruction. This is not Covid. The war in the Middle East continues, without an end in sight. And we expect to see a lot more back and forth on that front,” he said.

“The risk is that the RBNZ pulls the OCR forward to pre-empt a move (or three) in the coming months, not quarters. We can only hope that they remain cautious and willing to wait, worry and watch,” Kerr said.

According to Kerr, it’s too early to assess the “inflationary pulse” and the likely unwind from it. 

“It is too early to gauge the impact on demand,” he said. “And it is too early to see the adverse effects in the labour market. Therefore, it’s too early for the RBNZ to hike. If they do hike in July or September, they will be pre-empting inflation’s second round effects. Time will tell, and they have time to tell.”

More transparency

ANZ chief economist Sharon Zollner said oil shocks put monetary policy “between a rock and a hard place” and it wouldn’t be obvious for the RBNZ what the right thing to do is. ANZ is expecting the first OCR hike to happen in July.

“The best the Committee can do is try to keep in balance the risks of causing unnecessary pain now, hiking more than is actually necessary to keep inflation anchored in the medium term, and of causing unnecessary pain later in their attempts to avoid the former, that is, allowing inflation to become unanchored in the medium term and thus having to raise the OCR much further than if they had acted in a timely manner,” she said.

“Our best guess is that the Committee will use this statement to lay the groundwork for a hike at the next meeting in July, giving fair warning in a transparent fashion, but not pre-commit to that. In a world of such extreme uncertainty, flexibility is very valuable.”

Zollner said she also wouldn’t be surprised if the first hike of the OCR requires a vote from the Monetary Policy Committee (MPC).

Wednesday’s Monetary Policy Statement (MPS) will be the first statement out of the central bank to make the votes of committee members public when consensus is not reached over OCR decisions. 

The RBNZ also plans to publish instances where members have major differences of opinion in its records of meetings.

When announcing these changes in April, Reserve Bank Governor Anna Breman said it would make it easier for members of the MPC to communicate their individual views on the economic outlook and monetary policy strategy.

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