© Reuters. FILE PHOTO: Pedestrians walk past the Reserve Bank of Australia building in central Sydney, Australia, February 10, 2017. REUTERS/Steven Saphore/File Photo
By Lucy Craymer
WELLINGTON (Reuters) – New Zealand’s central bank held the cash rate steady at 5.5% on Wednesday, as policymakers reiterated that past tightening had helped constrain spending and temper inflation as required.
The decision was in line with all 27 economists in a Reuters poll forecasting that the Reserve Bank of New Zealand (RBNZ) would leave the official cash rate (OCR) at a 15-year high for the third consecutive meeting.
“Interest rates are constraining economic activity and reducing inflationary pressure as required,” the central bank said in a statement.
The RBNZ said the monetary committee agreed that interest rates will need to remain at a restrictive level for the foreseeable future to ensure consumer price inflation returns to its 1% to 3% target range.
Demand growth in the economy continues to ease and while GDP growth in the June quarter was stronger than anticipated, the outlook remains subdued, the central bank added.
“With monetary conditions remaining restrictive, spending growth is expected to decline further,” it said, but policymakers cautioned of a near-term risk that activity and inflation do not slow as much as needed.
New Zealand dollar fell following the decision as markets interpreted the policy stance as slightly less hawkish. The slid roughly 0.4% to a three-week low of $0.5883.
The central bank releases a comprehensive update of economic indicators and the forecast official cash rate track when it publishes its quarterly Monetary Policy Statement (MPS), which is due on Nov. 29.
A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ has lifted rates by 525 basis points in its fight against inflation since October 2021 in the most aggressive tightening since the official cash rate was introduced in 1999.
New Zealand’s annual inflation has come off in recent months and is currently running at 6.0%, just below a three-decade high of 7.3% in June 2022 with expectations that it will return to its target band within the next two years.
The rate hikes have sharply slowed the economy but recent data showed it was tracking above central bank expectations at 0.9% quarterly growth.
