The Reserve Bank of NZ believes that maintaining interest rates at their current highs will "return consumer price inflation to the bank’s 1% to 3% target by the end of 2024."
In a statement issued after its latest monetary policy discussion, the RBNZ stated that the extended period of rates at current levels (5.5% for the Official Cash Rate) would be "necessary to further reduce capacity pressures and inflation."
There was no hint of any softening in policy, with the bank asserting in a summary of the accompanying monetary policy statement that "Ongoing restrictive monetary policy settings are necessary to reduce inflation, while avoiding unnecessary instability in output, employment, interest rates, and the exchange rate."
"Globally, while there are differences across regions, economic growth remains below trend and is expected to remain subdued. However, most major central banks are cautious about easing monetary policy given the ongoing risk of persistent inflation,” the statement read.
The decision came despite recognition that “economic growth in New Zealand remains weak.”
"While some near-term price pressures remain, the Committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year,” the RBNZ added.
“A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation,” the central bank emphasized.
“The New Zealand economy continues to evolve as anticipated by the monetary policy committee,” the RBNZ said in its latest monetary policy review released with the rates decision.
"Some higher frequency indicators suggest a modest recovery in activity in the first quarter of 2024. However, measures of business confidence have declined and firms’ own expectations for activity and investment have weakened. Near-term business pricing intentions have declined but remain elevated, in part reflecting an uptick in both realized and expected costs,” the monetary policy statement read.
"Members agreed that persistence of services inflation remains a risk and goods price inflation remains elevated. Anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation."
This decision will be overtaken tonight with the release of the US CPI for March, followed by the ECB’s meeting and policy decision Thursday evening.
