Reserve Bank Holds OCR at 2.25%
Citing the beginning of Economic Recovery
February 18, 2026 — The Reserve Bank of New Zealand has decided to keep the Official Cash Rate (OCR) unchanged at 2.25 percent. Despite annual consumer price inflation sitting slightly above the target band at the end of 2025, the Monetary Policy Committee expects inflation to fall to the 2 percent midpoint within the next 12 months.
Inflation Trends and Outlook
Annual consumer price inflation reached 3.1 percent in the December 2025 quarter, just above the Committee’s 1 to 3 percent target range. The primary contributors to this above-target inflation included increases in food prices, electricity, and local council rates. Additionally, “tradables” inflation was driven by volatile items such as international airfares and overseas accommodation.
However, the Committee remains confident that inflation is returning to the target band in the current quarter. This projected decline is attributed to several factors:
Spare Capacity: Significant spare capacity remains in the economy, which limits upward price pressure.
Import Prices: Tradables inflation is expected to fall due to stable import prices and the recent appreciation of the New Zealand dollar.
Wage Growth: Current wage inflation rates are modest and consistent with returning inflation to the 2 percent target.
Economic Recovery and Sector Performance
The New Zealand economy is described as being at an “early stage in its recovery”. After a contraction in the June quarter, GDP increased by 1.1 percent in the September quarter, though the Committee noted that recent data have been volatile due to temporary factors.
Economic growth appears to be broadening across sectors such as construction, manufacturing, and some retail. Activity in the agricultural sector and regional New Zealand remains strong, supported by ongoing strength in commodity prices. However, the recovery is uneven; household spending remains constrained by cautious behavior and low employment income growth.
Labor Market and Housing
The labor market is stabilizing, but the unemployment rate remains elevated at 5.4 percent. While employment measures strengthened over the December quarter, substantial spare capacity persists in the labor market.
In the housing market, price growth remains weak, and prices have continued to edge downward despite lower mortgage rates. This weakness in house prices has dampened household wealth and reduced the inclination to spend. The Committee expects house price growth to increase gradually over 2026.
Future Outlook and Risks The Committee agreed that monetary policy is likely to remain accommodative for “some time” to ensure the economic recovery strengthens. They emphasized that a premature normalization of conditions could dampen the recovery and cause inflation to undershoot the target.
Risks to the outlook are considered balanced.
Downside Risks: High global uncertainty, geopolitical tensions, and the possibility that households remain more cautious than expected could slow recovery.
Upside Risks: Businesses might increase prices faster than expected as demand improves, or higher export incomes could spur investment.
The Committee stated that it will continue to carefully assess incoming data and gradually normalize policy settings as inflation falls sustainably toward the target midpoint.
RBNZ Press Release link