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Reserve Bank Governor Anna Breman in the bank’s Wellington boardroom, New Zealand, December 16, 2025. Photo / Mark Mitchell

Perspective with Heather du Plessis-Allan: When will the screws on the economy start turning?

Author: Newstalk ZB,
Publish Date: Wed, 27 May 2026, 7:22pm

Well, that Official Cash Rate decision is probably one of those moments where you find out whether you're a glass half-full or glass half-empty person.

Because on the bright side, the Official Cash Rate didn’t go up. On the downside, it looks like it’s definitely going up next time. So yes, it’s a reprieve - but it’s only a reprieve for six weeks, excuse me, before the screws on the economy start turning again.

Thanks to the new transparency rules at the Reserve Bank - which, frankly, we should all love - we know that the committee voted and it was split right down the middle. Three members of the committee wanted the OCR to stay at 2.25 percent. Three of them voted for it to be raised by 25 basis points immediately to calm down inflation pressures.

But Anna Breman, who is the governor, has a casting vote. She said it needs to stay, so it stays put.

But they didn’t hide the fact that it is going to go up sooner than they had thought just three months ago. And it will go up by more than they thought just three months ago.

Much of it appears to hinge on what businesses do with prices from here on in. Because what the Iran war is doing to prices is so widespread - and so many prices are going up, from fuel to fertiliser to food - that it runs a higher risk that businesses start jacking up more prices in a second round of increases. And that is what they’re worried about at the Reserve Bank.

So economists are now calling for three hikes in quick succession from here: July, September and October.

Now, there are two problems with that. The first: all three hikes are before the election in November. National, especially, should be sweating, because poorer voters are not happier voters - they are voters who turn to New Zealand First.

The second problem - and this is probably the biggest of them all - is what this is going to do to our recovery, our economic recovery.

We are probably in negative growth this quarter. Next quarter is probably not that flash but at least positive. Entire sectors, like construction, are still struggling to get back on their feet. Unemployment is still in the fives. The Iran war is still pushing up fuel prices and therefore pushing up the price of everything.

So, glass half full: at least we get another six weeks before the screws start turning.

Glass half empty: when they tighten, they will be tightening fast on an economy that doesn’t need that kind of pressure.

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