10 Apr 2024

Reserve Bank holds OCR at 5.5 percent

4:03 pm on 10 April 2024
Reserve Bank of New Zealand office and OCR text

The Reserve Bank has released the latest Official Cash Rate decision. Photo: RNZ

The Reserve Bank has left its official cash rate unchanged at 5.5 percent for a sixth consecutive meeting, saying it has more to do to get inflation totally under control.

Economists had expected the benchmark rate to be left unchanged at the same level since the RBNZ halted rate rises last May.

The central bank said inflation was expected to ease from the two year low of 4.7 percent reached at the end of last year, as consumers and businesses continued to keep a tighter rein on their spending.

But it warned interest rates needed to stay high to tackle still stubborn inflation pressures, and to return to its 1-3 percent target band.

"A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation," the Monetary Policy Committee said in a statement.

It said the economy remained weak but there were still near term pressures.

"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 percent target range this calendar year. "

In February the RBNZ's indicative forecasts for the OCR showed little prospect of a rate cut before mid-2025.

Never going to happen

The RBNZ statement was unusually short, which reflected its view that little economically or financially had changed since the February statement.

"The RBNZ were never going to adjust policy today. And the likelihood of a change in May is very slim (to none)," Kiwibank chief economist Jarrod Kerr said.

Recent surveys have shown business and consumer confidence slipping, as households keep a lid on their spending and the fall in sales and orders knocks profits.

ANZ chief economist Sharon Zollner said there were pockets of domestic inflation and overseas generated price pressures, such as oil prices that might be a test for the RBNZ.

"If domestic inflation proves stickier than expected and/or there is evidence of flow-through impacts onto broader price pressures and inflation expectations the RBNZ may have a problem, but that's not a problem for today."

She said consumer price index numbers for the first three months of the year due out next week, and then labour market data a couple of weeks later would be important in determining the RBNZ's stance in the May monetary policy statement.

"We continue to expect that the RBNZ will require considerably more certainty before contemplating cuts ... we continue to expect cuts won't be on the table until 2025."

Financial markets are still pricing in at least two rate cuts by the end of the year.