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New Zealand Central Bank Holds Rates Steady in Split Vote, Says Hikes to Come Sooner

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New Zealand Central Bank Holds Rates Steady in Split Vote, Says Hikes to Come Sooner

The Reserve Bank of New Zealand decided to hold interest rates steady at 2.25%, facing a split decision in which Governor Anna Breman cast the tiebreaking vote.

Three members of the central bank's board voted to hold the official cash rate, or OCR, emphasizing that core inflation and wage growth remain contained, while three members preferred to lift the rate by 25 basis points, saying first-round indirect price increases could become more broad-based, feeding through to a greater risk of second-round price increases.

The central bank expects inflation to peak at 4.3% in the September quarter as the Middle East conflict is increasing near-term inflation and weakening economic activity, while a return to the 2% target midpoint is expected in mid-2027.

The impacts of the Middle East conflict will feed through over time in the New Zealand economy, even if the conflict resolves before the next RBNZ meeting, said Breman in a post-meeting press conference.

"On balance, the OCR will most likely need to increase sooner ⁠and by more than envisaged in the February Monetary Policy Statement," the RBNZ said in its statement.

Westpac, which predicted a hold decision through a vote at this meeting, said it continues to expect that the cash rate will remain unchanged in July, and that it will be increased in September, October, and December.

Meanwhile, ANZ, which also expected a hold decision, said it expects three hikes this year, in July, September, and October.

The New Zealand government will disclose the annual budget on Thursday, in which ANZ expects Finance Minister Nicola Willis to show some spending restraint, with tax increases appearing unlikely.

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