The Reserve Bank has today left the official cash rate unchanged at 5.5 per cent and warned it will likely need to stay there for some time.
Governor Adrian Orr announced the move in the Monetary Policy Review this afternoon, in line with market expectations.
The RBNZ monetary policy committee said the OCR would need to “remain restrictive for the foreseeable future”.
It noted that the average mortgage rate had increased from three per cent in early 2022, to about five per cent as homeowners have progressively rolled off fixed rates.
But based on current commercial bank rates it would not reach a likely peak at six per cent until early next year.
ASB economists said this suggested the RBNZ was determined to hold the rate at its current level.
“We don’t expect OCR cuts until May next year, give or take,” said ASB chief economist Nick Tuffley.
The Reserve Bank said global economic growth remained weak and inflation pressures were easing.
In New Zealand, inflation was expected to continue to decline from its peak but wasn’t expected to be back in the target zone of 1-3 per cent until the second half of 2024.
Inflation in the year to March was 6.7 per cent.
“Core inflation was expected to decline as capacity constraints eased,” the RBNZ said.
“While employment was above its maximum sustainable level, there were signs of labour market pressures dissipating and vacancies declining.”
The Committee also noted that consumer spending growth had eased and residential construction activity had declined.
“More generally, businesses were reporting slower demand for their goods and services, and weak investment intentions,” it said.
In other words, there are clear signs that an economic downturn is underway and unemployment is expected to rise.
After recent falls, house prices were now around sustainable levels, the RBNZ said.
“House prices have stabilised in recent months and the Committee noted that the outlook for the housing market has become more balanced. Higher net migration is supporting demand for housing but higher interest rates continue to exert downward pressure on housing demand.”
In the minutes following the 2pm release, the New Zealand dollar eased a touch to US62.12c from 62.21c beforehand. In wholesale interest rates, the two-year swap rate – which has an influence on home mortgage rates – was unchanged at 5.565 per cent.
The Reserve Bank kicked off its current tightening cycle in October 2021.
But inflation has proven to be a stubborn adversary for many central banks worldwide.
There is ongoing speculation of more rate rises around the world, especially from the European Central Bank (currently at 3.5 per cent) and the Bank of England (5.0 per cent).
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.