The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.50% at its July meeting, in line with expectations. Policymakers aim to return inflation to the 2% target while avoiding unnecessary economic instability. The central bank noted that the partial reopening of the Strait of Hormuz has lowered global oil, gas and petrochemical prices, easing near-term inflationary pressures. Headline inflation is now expected to decline from a peak of 3.9% in Q2 2026 to around 2% over the next 12 months.
Even so, the Committee cautioned that the effects of the recent energy shock could linger. Medium-term inflation risks will hinge on how firms set prices, the extent of margin rebuilding and the impact of a weaker exchange rate. The New Zealand economy lost momentum in the June quarter as higher energy costs weighed on activity, but growth is projected to resume in the September quarter as fuel prices fall and business and consumer confidence improve.
