The Reserve Bank of New Zealand has kept interest rates unchanged as scheduled, tolerating short-term inflation but remaining vigilant for any "second-round effects".

The Reserve Bank of New Zealand decided on Wednesday to keep the official cash rate (OCR) at 2.25%, the lowest level in nearly four years, in line with market expectations, and reiterated that it would disregard the initial inflationary impact of soaring fuel prices. This decision was made hours after an interim ceasefire agreement was reached between the U.S. and Iran. The Reserve Bank of New Zealand stated, "If short-term inflation rises are mainly temporary, the committee expects to gradually adjust the OCR to a level closer to neutral as economic activity recovers and short-term inflation pressures ease." "However, if there are clear signs of second-round inflation effects or rising medium-term inflation expectations, it will be necessary to decisively and promptly raise the OCR to re-anchor inflation expectations. The committee is closely monitoring these risks." Reserve Bank of New Zealand Governor Adrian Orr will hold a press conference at 3 p.m. local time. The minutes of the meeting released on Wednesday showed that the Monetary Policy Committee unanimously agreed to keep rates unchanged. As the conflict in the Middle East drives up fuel costs, policymakers remain highly vigilant about price and wage setting behaviors that may trigger so-called "second-round effects," as these behaviors may cause inflation expectations to become unanchored. They are also concerned that the New Zealand economy lacks momentum, so any decline in household spending or investment may suppress demand and bring deflationary pressures. The Monetary Policy Committee stated, "If medium-term inflation expectations rise, inflation is likely to become more prolonged. However, weak demand and excess capacity in the economy should limit the degree to which higher costs are passed on to end prices." Economists at New Zealand's largest local banks expect overall inflation to remain above the Reserve Bank of New Zealand's target range of 1% to 3% throughout 2026, with some forecasts suggesting inflation could rise to over 4.5% in the middle of the year. The Reserve Bank of New Zealand stated on Wednesday that inflation in the second quarter could accelerate to 4.2%, adding that there is "considerable uncertainty" in this forecast. The central bank stated, "In the short term, the committee expects higher fuel prices to be reflected in higher transportation and food prices, reflecting the high energy intensity of these products." Analysts have also lowered their economic growth forecasts, with at least two institutions predicting a contraction in New Zealand's GDP in the second quarter. The Reserve Bank of New Zealand stated that recent discussions with businesses indicated signs of a slowdown in economic activity in March, but did not provide specific forecasts. IMF Managing Director Kristalina Georgieva said on Tuesday that the organization is prepared to lower global economic growth forecasts next week, adding that the conflict in the Middle East has triggered a "negative supply shock," making inflation a priority focus.