The RBNZ’s new forecasts indicate some chance of a quarter-point hike later this year
Published Wed, Feb 18, 2026 · 11:22 AM
[WELLINGTON] New Zealand’s central bank held interest rates at the lowest level in 3½ years and expects them to remain there for a period while the economy regathers momentum.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) kept the Official Cash Rate (OCR) at 2.25 per cent on Wednesday (Feb 18) in Wellington, as expected by all 22 economists surveyed by Bloomberg. The RBNZ’s new forecasts indicate some chance of a quarter-point hike later this year.
“If the economy evolves as expected, monetary policy is likely to remain accommodative for some time,” the RBNZ said. “The Committee will continue to assess incoming data carefully. As the recovery strengthens and inflation falls sustainably towards the target midpoint, monetary policy settings will gradually normalise.”
The currency slid as much as 0.6 per cent to 60.12 US cents while the yield on policy-sensitive two-year notes extended an earlier decline as traders pared expectations on RBNZ rate hikes. Markets priced a roughly three-in-four chance of a hike by October shortly after the decision, down from 90 per cent prior.
With the economy recovering and inflation holding above the RBNZ’s 1 to 3 per cent target, policymakers remain cautious about how soon to begin unwinding monetary stimulus. That sentiment contrasts with investors, who are pricing at least one rate hike in the fourth quarter, and some economists, who anticipate tightening as soon as September.
Governor Anna Breman, who led the deliberations for the first time since taking the RBNZ’s helm in early December, will hold a press conference at 3 pm local time. The MPC agreed by consensus to hold rates, according to the record of the meeting also published on Wednesday.
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“The Committee agreed that the economic recovery remains nascent, and a premature normalisation of monetary conditions could dampen the recovery and lead inflation to undershoot the target,” the RBNZ said. “The Committee also considered the risk that policy remains accommodative for too long, leading inflation to persist above the mid-point of the target range for longer.”
The RBNZ’s forward guidance shows the average OCR rising to 2.38 per cent by the end of the year, compared with 2.28 per cent projected in the previous outlook published in November. That implies a 50 per cent chance of a rate hike. It forecasts the average OCR will be 2.62 per cent by mid-2027.
Under Breman’s predecessors, the RBNZ executed an aggressive 15-month easing cycle from August 2024 that reduced the cash rate by 3.25 percentage points.
Global divergence
New Zealand’s pause comes at a time when global central banks are divided on policy as they grapple with disparate economic and inflation cycles. The Reserve Bank of Australia has been forced to reverse course and resume hiking rates to tackle resurgent price pressure while traders are sticking with bets for the US Federal Reserve to cut borrowing costs at least twice this year.
Market pricing for US rates has helped drive the greenback lower. The RBNZ’s decision today trimmed the kiwi’s more than 6 per cent rally against the US dollar in the past three months.
New Zealand inflation picked up to 3.1 per cent in the fourth quarter after the economy expanded 1.1 per cent in the three months to September, suggesting a recovery is now well under way.
The RBNZ today projected inflation will slow to 2.3 per cent by the end of 2026, which is modestly higher than the 2.2 per cent previously predicted. It expects inflation will reach the 2 per cent target midpoint by the second quarter of 2027.
Committee members “noted the risk of inflation remaining more persistent, given surveys showing somewhat elevated inflation expectations and business pricing intentions”, the RBNZ said. “One member supported maintaining the OCR at current levels for now but noted that if economic activity recovers as expected, monetary stimulus could begin to be withdrawn somewhat earlier without compromising the economic recovery.” BLOOMBERG
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