Reserve Bank of New Zealand Holds Cash Rate Steady at 5.5%

No Rate Cut:  Reserve Bank of New Zealand (RBNZ), on Wednesday, maintained its cash rate at 5.5 per cent, signalling continuity in its efforts to rein in inflation despite economy's slowdown. decision aligned with expectations from a Reuters poll of 29 economists, all of whom anticipated preservation of cash rate at its 15-year high for sixth consecutive meeting.

RBNZ emphasised necessity of sustaining restrictive monetary policy measures to curb inflation while averting undue volatility in key economic indicators. Minutes from committee meeting underscored consensus that interest rates must remain at elevated levels to steer consumer price inflation back within target range of 1-3 per cent.

Echoing global sentiments of prudence regarding premature rate cuts, RBNZ reiterated its commitment to monitoring inflation trends closely before considering any justments to its policy stance. central bank noted a marginal change in risk assessment compared to its previous statement in February.

Despite decision, market response was muted, with New Zealand dollar showing little movement following announcement, reversing an initial uptick.

As a frontrunner in unwinding pandemic-era stimulus measures among its peers, RBNZ has embarked on an aggressive tightening path, raising rates by 525 basis points since October 2021. This marked most assertive tightening since introduction of official cash rate in 1999.

Inflation Moderated

While New Zealand's annual inflation has moderated in recent months to 4.7 per cent, it remains above target band. RBNZ anticipates a return to target range later this year. However, repercussions of rate hikes have been evident in economy, with recent data indicating a technical recession in fourth quarter of 2023, highlighting significant deceleration in economic activity.

With Reuters Inputs