New Zealand’s central bank raised its official cash rate (OCR) by 25 basis points to 2.75% on Wednesday, marking the second consecutive increase aimed at curbing rising inflation. The decision, made by the Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee in Wellington, was widely anticipated by market analysts.

The RBNZ indicated that further tightening may be necessary, with forecasts suggesting the possibility of another quarter-point hike before the end of 2026. The committee highlighted that gradually removing monetary stimulus remains essential to bringing inflation back to the target midpoint of 2%, while also supporting economic growth and employment.

“The Committee judges that gradually removing monetary stimulus is appropriate to return inflation to the 2% target midpoint while supporting growth and employment,” the central bank said in its post-meeting statement. It added that future policy moves would depend on assessments of inflation risks over the medium term.

Following the announcement, the New Zealand dollar declined nearly half a U.S. cent, trading at about 58.50 U.S. cents. Yields on two-year government bonds, which are sensitive to policy shifts, also fell by six basis points to 3.59%. The six-member committee reached its decision unanimously, according to the official Record of Meeting.

The RBNZ began its tightening cycle in July after inflation climbed above the bank’s 1% to 3% target range, signaling a move to withdraw the accommodative measures introduced during earlier economic disruptions. The central bank’s updated projections show the OCR rising to an average of 2.81% in the fourth quarter, slightly below the 2.84% forecast released in May, and reaching 3.07% by mid-2027.

“Conditional on the central economic outlook, members judged that the OCR may need to increase further,” the committee noted, while emphasizing that the future path of the OCR is not pre-determined.

The prospect of a renewed economic recovery in the second half of the year is expected to add inflationary pressure, with investors and economists largely anticipating the OCR will need to reach at least 3% to achieve monetary neutrality.

Market pricing ahead of the announcement indicated approximately a 65% probability of a rate increase at the next policy meeting in October, with a hike by December considered a certainty.

The higher borrowing costs come at a delicate time politically, as New Zealand’s center-right government prepares for the November general election. The administration has been campaigning on promises of strong economic management, and the tightening cycle may weigh on consumer and business borrowing in the short term.