The RBNZ hikes the OCR by 25bps to 2.50%, as expected; some further reduction in monetary stimulus is likely to be required to return inflation to the 2% target mid-point

Reached consensus to increase the OCR by 25bps. Following the partial reopening of the Strait of Hormuz, global oil prices have fallen markedly. As a result, near-term inflation pressures have eased. The effects of the shock will linger for some time and the outlook for medium-term inflation pressures remains uncertain. Growth is expected to resume in the September quarter as these effects fade and confidence improves. The outlook for medium-term inflation pressures depends on the extent to which recent cost increases feed through into higher prices. Future OCR decisions will depend on how incoming data, price-setting behaviour, and the strength of economic activity affect medium-term inflation pressures. RBNZ Minutes: The forecast for near-term inflation has declined, given that current oil futures pricing is now significantly lower than assumed in the May Statement. Annual headline inflation is expected to have peaked at 3.9% in the June 2026 quarter, before declining to 3.3% in the September 2026 quarter. The Committee judged that there are both risks to the upside and the downside. In the discussion, Gai and Gourley assessed that risks were skewed to the upside, while Breman, Conway, Hansen and Silk viewed risks as broadly balanced. The Committee discussed risks around domestic price-setting behaviour. All Committee members agreed that this will be a key determinant for the medium-term inflation outlook. The Committee assessed that the current level of the OCR remains accommodative. While further OCR increases appear likely at upcoming meetings, their timing is highly uncertain.