New Zealand central bank expects inflation to slow but may act if outlook changes

The Reserve Bank of New Zealand held its cash rate at 2.25% and said it expects inflation to return to the 1–3% target band this quarter; it also said it would tighten policy sooner if stronger growth or broader price-setting pushed inflation higher.

The Reserve Bank of New Zealand left its official cash rate at 2.25% and described policy as accommodative for some time. Governor Anna Breman told a parliamentary committee she expects headline inflation to ease back into the 1–3% target band this quarter, and said recent above-target readings were largely driven by volatile tradable items. Breman added the bank is not planning rate hikes unless inflationary pressures strengthen or the economy grows in a way that changes firms' pricing behaviour. Policymakers are balancing a nascent recovery against still-elevated inflation as they assess the outlook. What is known: - The RBNZ kept the official cash rate at 2.25% at its latest decision. - Headline inflation was 3.1% last quarter and was described by the governor as too high but influenced by volatile tradable items. - The bank expects inflation to return to the 1–3% target band this quarter. - The revised OCR track signalled some possibility of a rate hike by the end of the year, and market swap pricing moved to a December expectation from an earlier October view. - Monetary Policy Committee members noted both that recovery could lead to earlier withdrawal of stimulus and that raising rates too quickly might affect firms' price-setting. Summary: The RBNZ’s hold on rates keeps monetary settings supportive while it watches whether recent inflation is temporary or reflects broader changes in pricing behaviour. Officials said they would act sooner if stronger growth or persistent inflation pressures emerge, and markets have shifted to price a possible year-end rate increase. Undetermined at this time.