‘To stay stringent, the central bank of New Zealand keeps interest rates at 5%’

On Wednesday, the Reserve Bank of New Zealand maintained interest rates at their current levels, but stated that rates would stay higher for longer due to the bank’s efforts to rein in excessive inflation levels.

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In line with analyst predictions for a pause, the RBNZ maintained its official cash rate (OCR) at 5.50%. The bank’s previous meeting, where it stated that it would “watch, worry, and wait” for inflation to reach more bearable levels, essentially hinted at the decision.

On Wednesday, the central bank reaffirmed this point, noting that rates will be higher for a longer period of time in order for inflation to meet the RBNZ’s goal range of 1% to 3% annually.

Following the RBNZ announcement, the New Zealand currency pared some intraday gains but was still up approximately 0.3%.

“Measures of inflation expectations and inflation are likely to decrease further from their peaks. As capacity restrictions loosen, core inflation is anticipated to decrease. While employment is at its maximum sustainable level, there are indications that labor market pressures are easing and job openings are dropping, according to a statement from the RBNZ’s Monetary Policy Committee.

With a report for the second quarter due next week, consumer price index inflation has decreased from 7.2% in the first quarter to 6.7% as of today.

The RBNZ, one of the first global central banks to start raising interest rates in response to a post-COVID inflationary rise, has now stopped raising rates after a two-year cycle. Since June 2021, the bank has increased rates by a total of 500 basis points, but moving ahead of schedule had little effect on the nation’s persistent inflation.

Due to the effects of two catastrophic cyclones, which disrupted some supply chains and increased labor and construction costs, New Zealand inflation was also driven up this year.

The cyclone’s effects, along with rising interest rates and inflation, caused the New Zealand economy to technically enter a recession in the first quarter of 2023.