New Zealand’s central bank left its key interest rate unchanged on Wednesday after tightening the policy over the past twelve consecutive sessions.
The Monetary Policy Committee of the Reserve Bank of New Zealand governed by Adrian Orr, decided to leave the Official Cash Rate at 5.50 percent, which was the highest rate since late 2008.
The central bank has lifted the OCR by a cumulative 525 basis points since October 2021.
“The Committee agreed that interest rates will need to remain at a restrictive level for the foreseeable future, to ensure consumer price inflation returns to the 1 to 3% target range while supporting maximum sustainable employment,” the bank said.
Although the central bank suggested that rate cuts would be unlikely before the second half of 2024, the combination of a deepening recession and easing price pressures will pave the way for an easing cycle as early as the first quarter of 2024, Capital Economics’ economist Abhijit Surya said.
Policymakers observed that inflation is set to fall within the target band by the second half of 2024 and risks around the projection were broadly balanced.
The current monetary conditions are restricting spending and reducing inflationary pressures, the MPC said. Still inflation remains too high.
The MPC assessed that house prices fell to around sustainable levels and the outlook for the housing market has become more balanced. Higher net migration supported demand for housing but higher interest rates continue to exert downward pressure on housing demand, policymakers added.
Underpinned by arrival of more migrants, labor shortages have started to ease. Recent indicators also suggest that labor market conditions are easing.
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