Holding pattern at 2.25% – but not for mortgage rates
The Reserve Bank has kept the official cash rate at 2.25%, citing ongoing global uncertainty and higher funding costs even as domestic demand remains subdued.
“The Monetary Policy Committee today agreed to hold the OCR at 2.25%,” the bank said in its April update, noting that global shocks continue to unsettle financial markets.
Oil shock drives inflation and weakens growth
Events in the Middle East have pushed up global oil and refined fuel prices and disrupted supply chains, feeding through into transport, food, and wider business costs.
RBNZ now expects annual consumers price inflation to reach 3% in the March quarter and 4.2% in June, before easing as supply conditions stabilise. At the same time, GDP grew just 0.2% in the December quarter, with households cautious and business investment soft.
The bank warned that the current environment is different from 2022: demand is weaker, margins are tight, and higher fuel and import costs risk eroding already limited household purchasing power. That combination could temper housing demand even as population growth and rental pressures continue to underpin the market.
Funding costs and future OCR risk
Domestic financial conditions have already tightened.
“Fixed-term mortgage rates have increased, with two-year rates up by around 20 basis points,” RBNZ said, reducing the extra stimulus it had previously expected from borrowers refixing at lower mortgage rates.
The committee emphasised it “is vigilant to any generalised inflationary pressure and stands ready to act to return inflation to its medium-term target.” It also warned that “decisive and timely increases in the OCR would be required” if inflation expectations or wage and price setting point to more persistent pressures.
Read the RBNZ announcement here.
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