Neil Sands
The Reserve Bank left the official cash rate (OCR) on hold at 2.25% on Wednesday and signalled that it was adopting a wait-and-see approach as it seeks to contain inflation while encouraging a “nascent” economic recovery.
Fronting her first monetary policy decision since her appointment in December, Reserve Bank Governor Anna Breman indicated the 25-basis point cut last November was the last of the current easing cycle, with at least one hike likely before the end of the year.
“We see that with spare capacity, we need to leave the OCR where it is… then when we see that the recovery is gaining and we’re seeing a stronger economic outlook, then it’s time to gradually normalise monetary policy,” she said.
“Currently, our best forecast is the OCR track (see graph) and that indicates there’s a possibility of a rate hike before the end of the year, but it’s not entirely priced in.”
Asked if she expected banks, which have been criticised for not passing on previous OCR cuts, to cut mortgage rates in response to Wednesday’s decision, she replied: “We see that market expectations are very much in line with this decision.” 
Breman said inflation was set to reach the mid-point of the bank’s 1.0% to 3.0% target over the next 12 months and remain there over the medium term, even though it reached 3.1% in the final quarter of 2025.
She said data showed the economy was picking up but a cautious approach to rate hikes was needed until it gained momentum.
“We’re in the early stages of an economic recovery but it’s true that many households will not feel this yet. They’re still feeling the high inflation we had over the past few years, many businesses are struggling.
“We want to keep the OCR on hold to support the recovery while ensuring that inflation falls back to target.”
ANZ Chief Economist Sharon Zollner backed the central bank’s approach, saying: “Stepping back to observe how things pan out is sensible.”
“Today’s statement was always going to be a balancing act,” she said, citing the need to monitor the “awkward” above-target inflation data in December against the risk of “unnecessarily choking off a recovery that is still quite new and potentially fragile”.
The next monetary policy decision is scheduled for April 8, when the Reserve Bank will have fresh data on economic growth, inflation and unemployment, potentially providing a clearer picture of the outlook for the economy and interest rates.
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