The Reserve Bank of New Zealand held the cash rate at 5.5% as expected at today’s monetary policy meeting.
Guidance remained for the cash rate “to stay at restrictive levels for some time”.
However, it revised up the cash rate path to a peak of 5.6% with slower cuts from the second half of next year amid slightly higher inflation forecasts:
In its statement accompanying the decision, the Reserve Bank noted that the “New Zealand economy is evolving broadly as anticipated”.
“Activity continues to slow in parts of the economy that are more sensitive to interest rates”.
“Labour shortages are easing as overall demand softens and immigration adds to labour resources”.
“Headline inflation and inflation expectations have declined, but measures of core inflation remain too high”.
“The imbalance between demand and supply is moderating in the New Zealand economy. However, a prolonged period of subdued spending growth is still required to better match the supply capacity of the economy and reduce inflation pressure”.
“The Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1 to 3% per annum, while supporting maximum sustainable employment”.
As noted above, the Reserve Bank issued new forecasts, and these show a slightly longer timeframe for the official cash rate (OCR) to be cut again than the previous forecasts in May.
The Reserve Bank has also left its options open of another increase to the OCR by now having a ‘peak’ in its forecast track of 5.6% (see chart above).
