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RBNZ Holds Interest Rate Amid Economic Concerns

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  Published in House and Home on Wednesday, February 18th 2026 at 19:53 GMT by rnz
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Wellington, NZ - February 19th, 2026 - The Reserve Bank of New Zealand (RBNZ) today announced it would hold the Official Cash Rate (OCR) at 5.5 percent, a decision largely welcomed by homeowners and economists alike. This marks a continued pause in the aggressive tightening cycle the RBNZ embarked on to combat inflation, and signals a cautious approach towards future monetary policy.

The decision, made public earlier today, comes amidst slowing inflation but persistent concerns about consumer spending and the fragile state of the housing market. Economists suggest these factors heavily influenced the RBNZ's choice to maintain the status quo, avoiding a potential deepening of the economic contraction.

Josh Kalinowski, Head of Economics at BNZ, believes holding the rate was the correct course of action. "A hike at this point would have risked pushing economic activity into a deeper contraction than needs be, and created more pain for households," Kalinowski stated. This sentiment underscores the delicate balancing act the RBNZ faces - curbing inflation without unduly stifling economic growth and increasing financial hardship for families.

Westpac's Chief Economist, David Morgan, echoed this view, emphasizing the lagged effects of previous rate increases. "I think they're rightly cautious. They're seeing the lagged effects of the rate hikes they've already implemented start to bite." The impact of previous OCR increases typically takes several months to fully manifest in the economy, affecting borrowing costs, investment decisions, and consumer behaviour. The RBNZ is now observing these effects, likely hoping they will continue to cool demand and bring inflation under control without needing further aggressive measures.

The RBNZ's accompanying statement reiterated its expectation that the OCR will remain at 5.5 percent until at least mid-2025. This provides a degree of certainty for businesses and individuals, allowing them to plan for the near future with a relatively stable interest rate environment. However, the central bank also stressed that this outlook is subject to change depending on incoming economic data.

While the RBNZ signals a prolonged period of stability, some economists anticipate potential rate cuts sooner than the projected mid-2025 timeframe. ASB Senior Economist, Mark Smith, highlights the crucial role of inflation data in shaping future decisions. "It really will depend on what we see in the inflation data over the coming months." If inflation continues to fall faster than anticipated, the RBNZ may be able to begin easing monetary policy and reduce the OCR.

Looking Ahead: Inflation, Consumer Spending, and the Housing Market

The current economic landscape is complex. Inflation, while declining from its peak, remains above the RBNZ's target range of 1-3 percent. This necessitates continued vigilance and a data-dependent approach to monetary policy. Consumer spending is a key area of concern. While employment remains relatively robust, rising cost of living pressures and the impact of higher interest rates are beginning to weigh on household budgets. A significant decline in consumer spending could exacerbate the economic slowdown.

The housing market also presents a mixed picture. House prices have stabilized in many regions after a period of significant correction, but affordability remains a major challenge for prospective homebuyers. Higher mortgage rates have reduced borrowing capacity, while tighter lending standards have made it more difficult to secure a loan. The state of the housing market is a crucial indicator of economic health, given its significant contribution to national GDP. A continued slowdown in the housing sector could have broader implications for the economy.

The RBNZ's decision today underscores the challenges facing central banks globally - navigating a delicate balance between controlling inflation and supporting economic growth. The coming months will be critical in determining the trajectory of the New Zealand economy and the future direction of monetary policy. Analysts will be closely monitoring inflation data, consumer spending patterns, and developments in the housing market for clues as to when the RBNZ might begin to consider easing its monetary policy stance and potentially lower the Official Cash Rate. The hope for many mortgage holders is that a sustained decline in inflation will pave the way for rate cuts in late 2024 or early 2025, offering some much-needed relief from the high cost of borrowing.