The Monetary Policy Committee said the New Zealand economy had evolved broadly as anticipated.
“Activity continues to slow in parts of the economy that are more sensitive to interest rates. Labour shortages are easing as overall demand softens and immigration adds to labour resources. Headline inflation and inflation expectations have declined, but measures of core inflation remain too high.”
The Committee outlined the double-edged risk to the New Zealand economy, with both persistent inflation risk and a sharper economic slowdown threatening the outlook.
“In the near term, there is a risk that activity and inflation measures do not slow as much as expected. Over the medium-term, a greater slowdown in global economic demand, particularly in China, could weigh more on commodity prices and overall New Zealand export revenue.”
Dairy prices slumped by 7.4 per cent at this morning’s Global Dairy Trade auction, led by a 10.9 per cent fall in whole milk powder (WMP) to US$2548 a tonne, its lowest point in almost five years.
Concerns are growing globally about the impact of an economic slowdown in China.
Committee members discussed the risk to those parts of the economy most exposed to lower commodity or asset prices and agreed that the slowdown in economic activity will not be even across sectors of the economy, due to global factors and the varied impact of high domestic interest rates.
In particular, the Committee noted that pockets of stress were beginning to emerge for some households, and the commercial property, agriculture, and construction sectors.
The New Zealand dollar rallied slightly on the news, trading at US59.57c from US59.41c just before the release.
CoreLogic NZ Chief Property Economist, Kelvin Davidson noted that the RBNZ had pushed back the timing for the potential first cut in the OCR from later in 2024 to potentially early 2025.
“But there wasn’t a clear sense that any further increases would be likely in the meantime. Indeed, the change to the OCR track seemed to just reflect a technical tweak, around where they think the underlying level of the ‘neutral’ OCR now sits.”
The implications for the housing market were also pretty neutral, he said.
“Those with an existing mortgage due to be repriced from an older/lower rate up to current levels in the coming month or two will certainly be pleased to see the likelihood of a stable OCR for the next little while at least.”
Meanwhile, the hotly anticipated MPS caused issues for the RBNZ website. RBNZ tweeted at 2:02pm that its website was experiencing technical difficulties.
“Our website is currently experiencing technical difficulties. We will make our February Monetary Policy Statement available via LinkedIn ASAP,” RBNZ posted on X, formerly known as Twitter.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
