RBNZ Raises Cash Rate to 2.75%, Signals Less Aggressive Path Ahead

The Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25 basis points to 2.75% on Wednesday, in line with market expectations.

The decision, which marked the second consecutive rate hike and the second increase this year, was made to combat high inflation. The June quarter saw inflation rise to 4.1%, largely due to higher fuel and related prices following the Middle East conflict.

However, underlying inflation measures remained within the RBNZ's 1%-3% target range, with inflation excluding vehicle fuels falling to 2.9%. The central bank expects inflation to remain elevated this year before returning to the target band by mid-2027 and reaching the 2% midpoint later next year.

The RBNZ left the door open for further hikes, stating that gradually removing monetary stimulus remained appropriate and that the cash rate may need to increase further. However, it stressed that the future path was not predetermined and would depend on incoming data and the balance of inflation risks.