New Zealand's Central Bank Maintains Cash Rate, Emphasizes Ongoing Tight Monetary Policy

In a recent announcement, the Reserve Bank of New Zealand (RBNZ) has decided to keep the official cash rate (OCR) unchanged at 5.5%, sticking to a monetary policy setting not seen since the last 15 years. The central bank asserts that the elevated rate is necessary to keep a check on inflation and return it to the target range between 1% and 3%.

Consistent Rates Amid Inflation Concerns

The central bank's stance was predicted by financial experts, with the consensus from a Reuters poll indicating that the rate hold was widely expected. Moreover, the RBNZ highlighted that past rate increases have been effective in moderating price rises, even as they underscore the need for ongoing restrictive policies to further reduce inflationary pressures.

Futures of Rate Policy

Following the rate decision, the New Zealand currency experienced a dip, suggesting that the market had anticipated the possibility of a rate hike. Additionally, the RBNZ has projected a slight decrease in the peak forecast for the cash rate, suggesting a less aggressive future tightening of rates than previously anticipated, forecasting a peak at 5.6% rather than 5.7%.

Since the beginning of its fight against inflationary effects, the RBNZ has raised the OCR by a total of 525 basis points. This aggressive campaign started in October 2021 and represents one of the most rigorous monetary tightening cycles since the OCR's inception in 1999. Despite these measures, New Zealand's annual inflation rate remains high at 4.7%, although it is expected to fall back within the desired band in the latter half of the year.

The series of rate hikes has significantly impacted the nation's economy, which appears to be growing slower than the central bank's previous forecasts. However, the job market fared slightly better in the last quarter of 2023, with the unemployment rate landing at 4.0%, which was better than the forecasted 4.2%.

ReserveBank, Inflation, Policy