Restrictive policy needed to reduce inflation, it says
There was no relief in sight for mortgage holders today after the Reserve Bank of New Zealand kept the official cash rate unchanged at 5.5%, following a meeting on Wednesday of its monetary policy committee.
It’s the seventh meeting in a row in which the RBNZ has decided to stick with the status quo – the last time the cash rate changed was in May 2023, when it was lifted 25 basis points from 5.25% to 5.5%.
In releasing its April 10 monetary policy decision, the Reserve Bank, led by governor Adrian Orr (pictured above), said the New Zealand economy continued to evolve as anticipated by the monetary policy committee.
“Current consumer price inflation remains above the committee’s 1% to 3% target range,” the RBNZ said in today’s announcement.
“A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
“Globally, while there are differences across regions, economic growth remains below trend and is expected to remain subdued. However, most major central banks are cautious about easing monetary policy given the ongoing risk of persistent inflation.”
The RBNZ said economic growth in New Zealand remained weak.
“While some near-term price pressures remain, the committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1% to 3% target range this calendar year.”
Inflation remains high at 4.7%, still well above the RBNZ’s target, although as of the December 2023 quarter it had dropped for the fourth consecutive quarter, with the 4.7% figure marking the first time in two years it had fallen below 5%.
In a speech to the 2024 Economics Forum at the University of Waikato in February, Orr said inflation needed to drop to 2% as a crucial measure to stabilise the economy.
“2% continues to strike the right balance between the costs and benefits of inflation,” Orr said.
“A focus on 2% appears to be consistent with an ‘optimal’ level of inflation. In the long-term, an inflation target centred on 2% is more likely to mean continued growth and steady jobs, supporting the prosperity and wellbeing of everyone.”
What do you think of the Reserve Bank’s decision? Comment below
