Reserve Bank holds OCR as oil shock and ceasefire reshape NZ economic outlook
The Reserve Bank has held the Official Cash Rate steady at 2.25%, resisting pressure to raise rates even as the Middle East conflict has pushed New Zealand inflation above its target band and cast a shadow over the near-term economic outlook.
The decision, released at 2pm on Wednesday, came on a day of dramatic shifts. A surprise US-Iran ceasefire announced late in the afternoon sent oil prices plunging — Brent crude fell more than $14 to around USD $95 per barrel — creating uncertainty around the Reserve Bank’s own forecasts, which had been completed before the breakthrough was announced.
Reserve Bank Governor Anna Breman said the committee was “not close” to raising rates at this meeting and there had been “definitely no discussion or strong advocates for hiking.” However, the bank’s statement made clear it was prepared to act decisively if inflation continued to rise, warning that “decisive and timely increases in the OCR would be required” should conditions deteriorate further.
Annual inflation currently sits at 3.1%, above the 1–3% target band. The bank had forecast inflation rising to around 4.2% by the June quarter, though that projection may now be revised downward. Unemployment sits at 5.4%, with the bank expecting it to edge up to 5.6% by mid-year.
BNZ Head of Research Stephen Toplis described it as “a nightmare time for central banks and economic forecasters,” adding that the Governor had “played it with a straight bat” and done the right thing by avoiding a knee-jerk reaction. ASB Senior Economist Jane Turner noted that “the global economy has been upended by war in the Middle East, which has seen fuel prices rocket and transport and supply chains upended.”
Markets had been pricing in around a 60% chance of a rate hike by July, but those expectations softened after the ceasefire news. Most bank economists now expect any first hike to arrive in the second half of the year. BNZ is the most hawkish, forecasting September, while ANZ and ASB are pencilling in December.
The tangible impact of the oil shock on New Zealand businesses was starkly illustrated by regional airline Air Chathams, which announced it is cutting services across three North Island routes after its monthly fuel bill doubled from $500,000 to over $1 million. The airline has reduced Whakatāne flights by 45%, Whanganui by 22%, and Kāpiti by 10%. Chief executive Duane Emeny said there was “no real point in operating the services if we can’t cover direct cost,” and called on the government to restructure regional funding packages to help smaller carriers survive the crisis.
RNZ reported that while oil prices fell sharply on ceasefire news, petrol prices at the pump remain above $3 per litre nationwide. IATA warned that jet fuel supply disruptions could take months to resolve even with the Strait of Hormuz reopening. The Air Chathams announcement came as the NZX closed up 1.41% and the NZD appreciated against the USD on ceasefire news.
The Reserve Bank’s next full Monetary Policy Statement is scheduled for 27 May 2026.
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