New research from the Reserve Bank of New Zealand (RBNZ) has indicated that monetary policy changes – particularly adjustments to the official cash rate (OCR) – affect various parts of the economy at different intensities.
The study, released as part of the RBNZ’s ongoing analysis of monetary transmission, identified which industries and consumer price segments are most responsive to interest rate shifts.
The report found that industries involved in manufacturing, retail trade, and real estate transactions are among the most immediately influenced by changes in the OCR. These sectors tend to experience a slowdown in activity shortly after rate hikes, reflecting their dependence on financing conditions and consumer demand.
By contrast, sectors such as agriculture, including dairy and meat production, are less sensitive to rate movements. Their relatively stable output levels appear to be more influenced by global demand and commodity pricing than by domestic interest rates.
The analysis also examined how interest rate adjustments influence inflation in non-tradable goods and services – those not exposed to international competition.
Within this category, construction costs and accommodation services showed the highest degree of responsiveness. Increases in the OCR are typically followed by a reduction in the rate of price growth in these areas.
In contrast, services such as energy supply and insurance were found to be slower to react. This has implications for insurers and intermediaries, as inflation-linked pricing and cost recovery in these areas may lag behind broader economic adjustments.
“We found that prices for accommodation are quite sensitive. So, when the OCR increases, it puts downward pressure on the cost of going on holiday or business,” the authors said.
Understanding how different segments of the economy react to monetary policy helps the central bank monitor whether its decisions are having the intended effect and supports future policymaking.
The publication comes alongside the RBNZ’s May 2025 Financial Stability Report, which highlighted growing risks to New Zealand’s financial system due to global and domestic pressures.
RBNZ governor Christian Hawkesby said that while the country’s financial institutions remain resilient, international developments have created new uncertainties.
“Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk,” he said. “While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy.”
Recent US trade restrictions, which include tariffs affecting New Zealand exports, have intensified geopolitical risks. At the same time, local economic indicators point to a slowdown, with high interest rates affecting consumer spending and housing activity. Some relief has come through improved export returns, particularly from agriculture, and a modest decline in borrowing costs.
In the insurance space, general insurers appear to be operating under improved conditions.
A recent stress test conducted by the RBNZ suggested greater resilience within the sector, although the threat of major natural events – especially earthquakes – remains a key concern.
Regulatory work is also progressing under the Deposit Takers Act 2023. A significant development is the upcoming introduction of the Depositor Compensation Scheme on July 1. The scheme will provide a layer of protection for depositors in the event of a financial institution failure.
In tandem, the RBNZ is undertaking a review of core bank capital settings. The review aims to ensure these settings are robust enough to support system-wide financial resilience and will involve engagement with independent experts.
