Reserve Bank Governor Anna Breman says interest rate hikes are "very likely" ahead after she used her casting vote to break a three-all split and hold the Official Cash Rate at 2.25%.
"On balance I thought it was appropriate to hold, but to signal that it is very likely that we'll see interest rate hikes going forward," Breman told BNZ Business Breakfast on Thursday.
"It's pretty tough out there right now."
The Reserve Bank’s Monetary Policy Committee voted to hold the OCR at its meeting on Wednesday — a decision widely expected by all five major banks. The rate has sat at 2.25% since November last year, following an easing cycle that brought it down from a peak of 5.5% in May 2023.
The committee split 3–3 on whether to hold or hike rates, with Breman using the Governor’s casting vote to keep the OCR unchanged. All six members agreed that rate increases were coming this year — they differed only on when.
The split vote was also the first published dissent under new transparency rules Breman introduced, requiring disagreements to be made public.
Asked if she had any regrets about making the process so transparent, Breman was unequivocal.
"No — on the contrary, I think it was a very good time, especially when you have a split vote, to give the different members a chance to give their view on inflation and the outlook for the New Zealand economy."
The average mortgage rate was 4.9% in March and is expected to rise to 5.3% over the next 12 months — before any OCR hikes are factored in.
Markets were pricing in 100 to 125 basis points of increases over the coming year, which would take the OCR into the mid-threes.
Breman said financial conditions had already tightened, with wholesale and mortgage rates rising significantly — which was itself dampening the outlook for growth and inflation.
Annual inflation sat at 3.1% in the March 2026 quarter — above the Reserve Bank’s 1 to 3% target band for the second consecutive quarter.
The bank forecast inflation to peak at 4.3% in the September 2026 quarter, driven by higher oil and petrochemical prices flowing from the Middle East conflict's disruption of supply through the Strait of Hormuz.
Breman said the conflict was affecting New Zealand in fundamental ways — not just at the petrol pump, but through the cost of fertilisers, plastics, and transport.
"It's big disruptions to supply chains — it's really oil-related products, it's fuel for New Zealanders, higher cost at the petrol pump, but it's also fertilisers, plastics, and with these input costs going up, it means that transport costs are also likely to go up," she said.
The bank expects inflation to return to its 2% midpoint by mid-2027. Core inflation has eased to 2.3% and long-term expectations remain anchored near 2%.
The timing of the OCR decision was difficult. Rate hikes are coming into an economy that is already slowing — GDP growth in 2026 is now forecast to be 0.9 percentage points lower than the bank assumed in February. Consumer and business confidence have fallen sharply. The housing market remains weak.
Anna Breman spoke to Q+A about oil price uncertainty and whether the bank has the authority to mandate cash access. (Source: Q and A)
Breman said she was conscious of the pain being felt across the economy and that the committee was focused on avoiding unnecessary volatility.
"What we do is important, because it affects all New Zealanders, households, and businesses."
The OCR review came just a day before Finance Minister Nicola Willis delivers Budget 2026 this afternoon. The Reserve Bank operates independently of the government, but fiscal policy — how much the government spends and where — feeds directly into the inflation outlook the bank is managing.
Breman said the bank's current forecasts were based on the December half-year economic update rather than today's Budget, as formal announcements are not incorporated until they have been decided on.
"We will look for it and analyse it and see if we think it has any material impact on the outlook for inflation in New Zealand," she said.
The next review of the Official Cash Rate will take place on July 8.
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