By Lucy Craymer
WELLINGTON, April 8 (Reuters) - New Zealand's central bank kept its policy rate at 2.25% on Wednesday for a second straight meeting, choosing to sit tight as it gauges the economic fallout from the Middle East war - but signalling it is ready to act if inflation pressures intensify.
The decision was fully priced in with all 32 economists in the Reuters poll forecasting the Reserve Bank of New Zealand would hold the official cash rate.
The pause comes after an aggressive easing campaign,
with the central bank cutting rates by 325 basis points since August 2024 as inflation cooled and economic growth faltered. That calculus is now shifting. Inflation is now at 3.1%, outside of the central bank's target range of 1% to 3% and is set to rise further as the Middle East crisis drives up fuel and transport prices. “The Committee’s decision to hold the OCR balances the potential benefits of responding pre-emptively to the risk of higher medium-term inflation against the cost of unnecessarily stifling the economic recovery,” the RBNZ said in its accompanying Monetary Policy Review statement.
The central bank does not provide comprehensive economic forecasts in its monetary policy review, though accompanying slides released ahead of its press conference indicated it expected inflation to rise above 4% this year.
In February, the central bank forecast that annual inflation had peaked in December 2025 and would decline towards the 2.0% midpoint of its target range by mid-2027.
"The extent of the near-term increase in headline inflation will depend on how the conflict in the Middle East evolves and the magnitude and duration of the disruption to global supply chains and energy markets," the statement said.
It added that the Committee remained focused on ensuring that inflation returns to the 2% target midpoint over the medium term, which required core inflation and wage growth to remain contained and medium and long term inflation to stick around 2%.
"If these conditions are not met, decisive and timely increases in the OCR would be required," the statement said.
FRAUGHT BACKDROP RAISES POLICY CHALLENGE
The backdrop remains fraught. Although New Zealand's economy has emerged from recession, growth is still anaemic and is being further squeezed by the Middle East turmoil, persistent uncertainty about the war's broader global impact and a tight fiscal stance.
Earlier on Wednesday, the United States, Israel and Iran agreed to a two-week ceasefire, sending oil prices sharply lower, though markets remain nervous over whether the pause in fighting can deliver lasting peace.
New Zealand's cautious monetary policy approach echoes a broader global shift, with central banks forced into an inflation-first posture by the Iran war. Markets have steadily pared back expectations of rate cuts - and in some cases are even flirting with renewed tightening, particularly in Europe - while the Federal Reserve has stayed on hold, warning that an energy shock could keep price pressures uncomfortably high.
The Reserve Bank of Australia has already hiked rates twice this year to 4.10% and markets imply a better than even chance of a lift to 4.35% in May.
(Reporting by Lucy CraymerEditing by Shri Navaratnam)
