RBNZ Raises Interest Rate for Second Time in Row Amid Inflation Fears

New Zealand's central bank, the Reserve Bank of New Zealand (RBNZ), has raised its key interest rate for the second consecutive meeting to combat inflation. The official cash rate (OCR) was increased by a quarter percentage point to 2.75%. This move was widely anticipated by economists and investors.

The RBNZ's Monetary Policy Committee stated that removing monetary stimulus is necessary to return inflation to its target mid-point of 2% while supporting growth and employment. The committee noted that future policy decisions will depend on their judgment of the balance of risks to medium-term inflation.

The New Zealand dollar fell by almost half a US cent after the announcement, reaching 58.50 US cents in Wellington. The yield on policy-sensitive two-year government notes also decreased by six basis points to 3.59%. The RBNZ initiated its policy tightening campaign in July, and investors had predicted that it would continue hiking interest rates towards a neutral cash rate of 3% or more.

The RBNZ's forward guidance indicated that the average OCR is expected to rise to 2.81% in the fourth quarter, which is lower than its previous forecast of 2.84%. By mid-2027, the average OCR is predicted to reach 3.07%. The committee emphasized that the future OCR path is not predetermined and may need to increase further depending on economic conditions.