RBNZ Holds Official Cash Rate at 2.25% as Split Vote Signals Imminent Hikes

The Reserve Bank of New Zealand’s Monetary Policy Committee has opted to maintain the Official Cash Rate at 2.25% on May 27, 2026, following an unprecedented split decision that required a casting vote from the chairperson. While the benchmark rate remains unchanged for now, the central bank issued highly hawkish forward guidance, indicating that interest rate increases will likely be required sooner and by more than previously forecast to combat stubborn inflation pressures.

Split Vote Highlights Committee Division

The decision to hold the benchmark rate was marked by a rare 3-3 split among the members of the Monetary Policy Committee. Three members, including Reserve Bank of New Zealand Governor Anna Breman, Karen Silk, and Paul Conway, voted to maintain the Official Cash Rate (OCR) at 2.25%. Conversely, three members, Carl Hansen, Hayley Gourley, and Prasanna Gai, voted for an immediate 25-basis point increase. Ultimately, Governor Anna Breman exercised her casting vote as chairperson to keep the rate unchanged.

Financial markets reacted immediately to the decision and the hawkish tone of the accompanying RBNZ Monetary Policy Statement. The New Zealand Dollar (NZD) saw an immediate increase of 0.7% against the US dollar shortly after the announcement. In wholesale fixed income markets, two-year swap rates increased by 3 basis points, reflecting expectations of imminent policy tightening. Market pricing now indicates a 72% probability of a rate hike at the next RBNZ Monetary Policy Review and OCR decision on July 8, 2026.

Hawkish Guidance and Rising Inflation Projections

The primary driver behind the hawkish shift is persistent domestic inflation, coupled with external supply shocks. Annual Consumers Price Index (CPI) inflation was recorded at 3.1% in the March 2026 quarter, exceeding the central bank's target band of 1% to 3%. Due to the ongoing Middle East conflict and its escalating impact on global energy prices, the Reserve Bank of New Zealand now projects annual CPI inflation to peak at 4.3% in the September 2026 quarter.

To address these persistent price pressures, the committee's revised OCR track signals an aggressive tightening cycle ahead. The updated projections show the OCR rising to by September 2026, moving up further to by June 2027, and reaching a terminal rate of by June 2029. This revised path suggests multiple rate hikes will be necessary over the remainder of the year. The central bank expects CPI inflation to return to the 2% target midpoint by mid-2027.