WELLINGTON: New Zealand’s central bank has kept interest rates unchanged for an eighth straight meeting and says tight monetary policy may be curbing demand more strongly than expected. The local dollar fell.
The Reserve Bank of New Zealand’s (RBNZ) monetary policy committee held the official cash rate at 5.5% yesterday in Wellington, as anticipated by all 20 economists in a Bloomberg survey.
It reiterated that policy needs to remain restrictive but added that the extent of restraint will be tempered as inflation slows.
“A range of business and consumer surveys and higher-frequency spending and credit data all point to declining activity,” the RBNZ said.
Committee members “discussed the risk that this may indicate that tight monetary policy is feeding through to domestic demand more strongly than expected.”
The economy is showing signs of a deepening slump, with gross domestic product expected to have resumed its decline in the second quarter.
The RBNZ projected in May that it wouldn’t start reducing rates until the third quarter of 2025. Investors and most economists predict it will pivot later this year.
The New Zealand dollar fell 0.6% to 60.89 US cents immediately after the decision, erasing an earlier gain. The yield on policy-sensitive two-year bonds fell eight basis points to 4.67% as traders increased bets on rate cuts starting later this year.
“Restrictive monetary policy has significantly reduced consumer price inflation, with the committee expecting headline inflation to return to within the 1% to 3% target range in the second half of this year,” the central bank said.
Central banks globally are focused on how quickly inflation is slowing and when they can begin easing.
The US Federal Reserve is expected to start cutting interest rates before the end of the year.
Australia’s central bank, on the other hand, continues to signal a possible rate hike, with inflation proving stickier than anticipated.
The RBNZ’s forecasts in May showed inflation falling below 3% in the final quarter of this year but not returning to its 2% goal until mid-2026.
Inflation slowed to 4% in the first quarter, the weakest reading in almost three years, but a gauge of domestically generated inflation barely slowed to 5.8%. — Bloomberg
