The Sectoral Factor Inflation Model of the RBNZ falls to 2.8% year-on-year in the second quarter of 2025.

The Reserve Bank of New Zealand (RBNZ) published its Sectoral Factorial Inflation Model indicator for the second quarter (Q2) of 2025, following the release of the official Consumer Price Index (IPC) by NZ Stats early on Monday.

The inflation rate fell to 2.8% year-on-year in the second quarter of 2025, down from 2.9% in the first quarter of 2025.

These inflation indicators are closely monitored by the RBNZ, whose monetary policy goal is to achieve an inflation rate between 1% and 3%.

Market Reaction

As of the time of writing this report, the NZD/USD pair is trading 0.25% lower on the day, standing at 0.5945.

Frequently Asked Questions about the RBNZ

What is the Reserve Bank of New Zealand?

The Reserve Bank of New Zealand (RBNZ) is the central bank of the country. Its economic objectives are to achieve and maintain price stability -which is reached when inflation, measured by the Consumer Price Index (IPC), is between 1% and 3%- and to support maximum sustainable employment.

How does the monetary policy of the Reserve Bank of New Zealand influence the New Zealand dollar?

The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand (RBNZ) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation exceeds the target, the bank tries to control it by raising its key OCR, which makes borrowing more expensive for households and businesses, thus cooling the economy. Higher interest rates are usually positive for the New Zealand dollar (NZD), as they lead to higher yields, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the NZD.

Why is the Reserve Bank of New Zealand concerned about employment?

Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ's goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be maintained over time without creating an acceleration of inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is maintained above the maximum sustainable level for too long, it will eventually cause prices to rise faster and faster, forcing the MPC to raise interest rates to keep inflation under control,” says the bank.

What is quantitative easing (QE)?

In extreme situations, the Reserve Bank of New Zealand (RBNZ) may apply a monetary policy instrument known as quantitative easing. QE is the process by which the RBNZ prints local currency and uses it to purchase assets - usually government or corporate bonds - from banks and other financial institutions with the aim of increasing the national money supply and stimulating economic activity. QE often results in a weakening of the New Zealand dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the central bank's goals. The RBNZ used it during the Covid-19 pandemic.