OCR raised to 2.50 percent to curb inflation

The Reserve Bank of New Zealand's Monetary Policy Committee unanimously increased the Official Cash Rate (OCR) by 25 basis points to 2.50 percent.

This decision aims to bring inflation back to its 2 percent target mid-point without causing undue economic instability.

The move comes despite a marked fall in global oil and petrochemical prices following the partial reopening of the Strait of Hormuz, which has eased near-term inflation pressures.

However, the Committee noted that the effects of the initial shock would persist, and the medium-term inflation outlook remains uncertain.

Global economic growth has shown resilience, supported by strong AI-related investment and increased spending on defence and economic security, largely offsetting the impact of tariffs and Middle East conflict.

New Zealand's own economic recovery, which had lost momentum in the June quarter due to the oil shock, is now expected to resume in the September quarter as these external effects fade and confidence improves.

The outlook for medium-term inflation depends significantly on how recent cost increases translate into consumer prices.

While spare capacity in the economy is anticipated to limit firms' ability to pass on higher costs, some businesses may seek to rebuild margins as demand recovers.

A sustained lower exchange rate could also contribute to medium-term inflation.

With inflation still above target and economic activity projected to strengthen, the Committee indicated that some further reduction in monetary stimulus is likely necessary to achieve the 2 percent target mid-point.

Future OCR decisions will be contingent on incoming data, price-setting behaviour, and the overall strength of economic activity, all of which will influence medium-term inflation pressures.