The Reserve Bank of New Zealand raised its cash rate by 25 bps to 2.50% at its July meeting, the first hike in three years and in line with expectations, as policymakers aimed to return inflation to the 2% target, while avoiding economic disruption. The central bank said the partial reopening of the Strait of Hormuz has lowered global oil, gas and petrochemical prices, easing near-term inflation pressures. Headline inflation is expected to decline from a peak of 3.9% in Q2 2026 to around 2% over the next 12 months. However, the Committee warned that the effects of the energy shock could persist, with medium-term risks tied to firms’ pricing behaviour, margin rebuilding and a weaker exchange rate. The economy lost momentum in the June quarter as higher energy costs weighed on activity, but growth is expected to recover in the September quarter as fuel prices ease and confidence improves. Policymakers noted that further increases remain possible, with the pace dependent on incoming data.

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