The Reserve Bank of New Zealand remains at 5.5% for the fifth consecutive meeting

He The Reserve Bank of New Zealand (RBNZ) has decided to keep its interest rate unchanged at 5.5% for the fifth consecutive meeting, as expected. The entity last changed its rates in May 2023, when it decided to raise it by 25 basis points to the current level.

RBNZ statement

Over the past year, New Zealand's economy has largely evolved as anticipated by the Committee. Core inflation and most measures of inflation expectations have declined and risks to the price outlook have become more balanced. However, headline inflation remains above the target band of 1% to 3%%, limiting the Committee's ability to tolerate upward surprises in inflation.

Tight monetary policy and lower global growth have contributed to aggregate demand slowing to better match the supply capacity of the New Zealand economy. With high immigration and weaker demand growth, capacity constraints in New Zealand's labor market have eased.

However, recent high population growth is supporting aggregate spending, as evidenced by upward pressure on housing rents, for example.

Internationally, global economic growth remains below trend and is expected to slow further during 2024. This moderate environment will support further moderation in New Zealand import price inflation.

The outlook for the Chinese economy remains particularly weak compared to recent historical norms, and there are structural factors limiting long-term growth. A broader risk to global growth is that central banks may need to keep policy rates at restrictive levels for longer than financial market prices currently reflect, to ensure inflation targets are met.

Rising geopolitical and climatic conditions remain a risk to inflation. The recent increase in global shipping costs is a manifestation of these risks. The Committee remains alert to these relative cost pressures and will act to limit spillovers to headline inflation if necessary.

The Committee remains confident that the current level of OCR is constraining demand. However, yese requires a sustained easing of capacity pressures in the New Zealand economy to ensure headline inflation returns to the 1% to 3% target. The OCR rate must remain at a restrictive level for a sustained period of time to ensure this occurs.
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