The Reserve Bank of New Zealand (RBNZ) remains on track to maintain the Official Cash Rate (OCR) at 2.25% after concluding its first monetary policy meeting of this year on Wednesday. The decision to keep its benchmark rate steady would follow three consecutive cuts, signaling a pause in the current easing cycle.
The decision is widely expected and will be announced at 01:00 GMT, accompanied by the Monetary Policy Statement (MPS), the quarterly inflation and OCR projections. RBNZ Governor Dr. Anna Breman, who is debuting at her first Monetary Policy Committee meeting, is also set to hold her first post-monetary policy meeting press conference at 02:00 GMT.
The New Zealand Dollar (NZD) could see a big reaction if the RBNZ surprises or offers clear hints on the path forward on interest rates.
What to expect from the RBNZ interest rate decision?
The RBNZ is finally expected to pause its interest rate-cutting cycle this week under the new leadership of Governor Breman.
The real question is whether the Kiwi central bank signals an end to the easing cycle amid rising inflation expectations, stabilizing labor market and a gradual economic recovery. Therefore, the updated OCR forecast will be closely scrutinized.
During the press conference following the November policy meeting, then Governor Christian Hawkesby noted that “the central projection is based on cash rate on hold through 2026,” adding that “we’re now seeing economic indicators picking up across all high frequency indicators.”
New Zealand’s two-year inflation expectations, seen as the time frame when RBNZ policy action will filter through to prices, ticked up to 2.37% in the first quarter of 2026, against the 2.28% seen in the final quarter (Q4) of last year.
Meanwhile, the Unemployment Rate rose to 5.4% in the December 2025 quarter, the highest since the September 2015 quarter, when it was 5.7%, according to data from Stats NZ. However, New Zealand’s Employment Change came in at 0.5% in Q4, up from 0% in Q3, beating the consensus forecast of 0.3%.
Strategists at BBH said: “The RBNZ is expected to bring forward its OCR hike projections because New Zealand inflation is running hot and the job market is improving. The swaps curve implies 50bps of hikes in the next twelve months, which is NZD supportive.”
How will the RBNZ interest rate decision impact the New Zealand Dollar?
The NZD/USD pair is in a bullish consolidative phase below the six-month high of 0.6094 ahead RBNZ event risk. Expectations of divergent monetary policy outlooks between the US Federal Reserve (Fed) and the RBNZ have played out in favor of the Kiwi, thus far.
The next leg north in the major depends on whether the RBNZ leans toward a hawkish guidance following the expected rates on hold decision. The NZD could also see fresh buying interest on an upward revision to the OCR forecast, which could imply that rate hikes are coming.
On the contrary, if the central bank downplays inflation risks while refraining from offering any clues on the direction of rates, the Kiwi Dollar could witness a steep correction.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for NZD/USD and explains:
“Kiwi bulls seem to be gathering pace for the next push higher. The 14-day Relative Strength Index (RSI) holds comfortably above the midline, while a Golden Cross is in the making. The 50-day Simple Moving Average (SMA) is on the verge of crossing the 200-day SMA for the upside.”
“The pair needs to take out the 0.6100 barrier on a sustained basis for a fresh uptrend. The next relevant bullish targets align at the 0.6150 psychological level and the 0.6200 round figure. On the downside, strong support is seen at the 0.6000 threshold, below which the February 6 low of 0.5928 will be tested. Failure there opens the door for a deeper pullback toward the 50-day SMA and 200-day SMA convergence at around 0.5875,” Dhwani adds.
Economic Indicator
RBNZ Monetary Policy Statement
The New Zealand Reserve Bank publishes its Monetary Policy Statement (MPS) quarterly. Each Monetary Policy Statement must set out: how the Reserve Bank proposes to achieve its targets; how it proposes to formulate and implement monetary policy during the next five years; and how monetary policy has been implemented since the last Monetary Policy Statement.
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Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.