The Reserve Bank of New Zealand (RBNZ) is widely anticipated to maintain its benchmark interest rate at 2.25 per cent on Wednesday, according to a consensus among economists. A recent Reuters poll revealed that all 31 economists surveyed expect the central bank to hold steady. The RBNZ last cut the key rate by 25 basis points in November, indicating that future monetary policy decisions will hinge on the evolving outlook for medium-term inflation and the broader economy.
Since the November rate cut, New Zealand’s inflation has edged upwards, reaching 3.1 per cent in the last quarter. This figure slightly exceeds the RBNZ’s target band of 1 per cent to 3 per cent and marks the highest inflation rate in over a year. Simultaneously, the New Zealand economy demonstrated a return to growth in the third quarter, following contractions in the three previous quarters since 2024. These factors collectively reinforce the prevailing expectation that policymakers will maintain the status quo at the upcoming meeting, while vigilantly monitoring inflationary pressures.
The Reuters poll, conducted between February 9 and 12, showed unanimous agreement among economists, including those from major banks such as ASB, ANZ, BNZ, Kiwibank, and Westpac, that the RBNZ will keep the official cash rate (OCR) unchanged at 2.25 per cent on February 18. Since August 2024, the central bank has implemented a series of rate cuts, totaling 325 basis points, with the aim of stimulating the economy and averting a prolonged recession.
Interestingly, the poll also highlighted a growing expectation for potential rate hikes later in the forecast horizon. Approximately 45 per cent of economists (13 out of 29) now anticipate one or more rate increases by the end of 2026, a notable increase from just seven in November. This shift suggests a possible conclusion to the aggressive easing cycle that has been in place since the Global Financial Crisis of 2008-09, although downside risks to economic growth remain a consideration. Futures markets are currently pricing in a substantial probability of a rate hike by the end of the third quarter.
