RBNZ holds cash rate for second consecutive month

The Reserve Bank of New Zealand (RBNZ) has announced its decision to keep the official cash rate (OCR) unchanged at 5.50 per cent. This decision marked the second time the RBNZ has held the cash rate since it began lifting rates in October 2021.

Following its May decision, the RNBZ indicated it would pause rates in July due to the impacts on spending and inflation.

For August, the monetary policy committee agreed that the OCR should stay at “restrictive levels for the foreseeable future” in order to ensure annual consumer price inflation returns to the target 1–3 per cent range, while supporting “maximum sustainable employment” at the same time.

The committee stated it is “confident” that inflation will return to target should rates remain at current levels.

“The current level of interest rates is constraining spending and hence inflation pressure, as anticipated and required,” the committee stated.

“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.”

Similarly, the Reserve Bank of Australia (RBA) agreed to also hold the official cash rate for the second month in a row at 4.1 per cent during the August monetary policy meeting, citing in the minutes of the meeting that there were signs that interest rates were “working as intended”, allowing for more time to analyse future data and the economic impact of the 12 rate hikes.

NZ in a recession

Data from Statistics NZ released in June 2023 revealed that New Zealand’s gross domestic product (GDP) fell 0.1 per cent in the March 2023 quarter, following a decline of 0.7 per cent in the December 2022 quarter, entering the country into a technical recession.

NZ Finance Minister, Grant Robertson, said the fall in GDP reflected the impact of the Auckland Anniversary floods and Cyclone Gabrielle that resulted in estimates of hundreds of millions of dollars of lost production and activity across agriculture, forestry, fishing, transport, and manufacturing.

“The result was not a surprise,” Mr Robertson said.

“We know 2023 is a challenging year as global growth slows, inflation has stayed higher for longer and the impacts of North Island weather events continue to disrupt households and businesses.

“But the resilience of the New Zealand economy, including historically low unemployment, means it will not have the impact that would normally be associated with this term.”

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