OCR on hold for now: RBNZ warns rates will rise sooner than expected

Author: Liam Dann,
Publish Date: Wed, 27 May 2026, 12:46pm

The Reserve Bank is widely expected to leave the Official Cash Rate on hold at 2.25% when it releases its full Monetary Policy Statement at 2pm.

But as a curtain-raiser for tomorrow’s Budget, the details should offer plenty to debate.

Already, there is a divide between those who think we need to hike rates now to head off inflation and those who believe the economy is too depressed.

As well as providing insight into where the RBNZ sees rates heading in the next six months, the Monetary Policy Statement (MPS) will include its first set of full economic forecasts since the Iran war delivered the oil price shock in March.

The uncertainty around the full inflationary impact of the oil price shock, and the likely timeframe of the Iran war, will make the RBNZ’s job extremely difficult.

BNZ’s head of research Stephen Toplis didn’t hold back in his assessment of the challenge facing the bank.

“The RBNZ will get it wrong!” he wrote in his preview of the rate decision.

“As will we all, as confusion reigns,” he said.

The question the RBNZ needs to answer is: “Will the inflation shock take on an air of permanence?”

This is a big problem, as there is almost no way to answer it, Toplis said.

You need to know when the war will end, when oil production will meet demand, even if the war doesn’t end, and what ensuing rounds of price increases will emanate from the supply shock, he said.

In other words, there is going to be guesswork involved.

Meanwhile, most economists are predicting that the RBNZ will bring forward its forecast rate hikes to July or September as it looks to head off oil shock inflation.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.