New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ), held its cash rate steady at 5.5 percent on Wednesday, May 22, 2024. This decision was in line with the expectations of all 30 economists surveyed by Reuters.
The RBNZ statement noted that the previous rate hikes had helped slow the economy and lower inflation, but there was some concern that inflation had fallen more slowly than expected. The Committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to the target range within a reasonable timeframe.
Governor Adrian Orr stated that the bank gave “real consideration” to raising interest rates at their recent meeting, before ultimately deciding that maintaining a restrictive monetary policy for a longer period would be sufficient to bring inflation back to the target range of 1 percent to 3 percent.
Consumer price inflation (CPI) came in higher than expected at 4.0 percent in the first quarter of the year.
Aggressive tightening to curb inflation
As a front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ has been battling to curb inflation. The central bank has raised rates by 525 basis points since October 2021, the most aggressive tightening since the official cash rate was introduced in 1999.
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Economic slowdown and inflation outlook
The rate hikes have sharply slowed the New Zealand economy, with recent data showing that the economy was tracking below previous central bank expectations. However, the country’s annual inflation has come off in recent months and is currently running at 4.7 percent, with expectations that it will return to the target band in the second half of 2024.
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