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

No Rate Cut: The 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 the economy's slowdown. The decision aligned with expectations from a Reuters poll of 29 economists, all of whom anticipated the preservation of the cash rate at its 15-year high for the sixth consecutive meeting.

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

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

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

As a frontrunner in unwinding pandemic-era stimulus measures among its peers, the RBNZ has embarked on an aggressive tightening path, raising rates by 525 basis points since October 2021. This marked the most assertive tightening since the introduction of the 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 the target band. The RBNZ anticipates a return to the target range later this year. However, the repercussions of the rate hikes have been evident in the economy, with recent data indicating a technical recession in the fourth quarter of 2023, highlighting the significant deceleration in economic activity.

With Reuters Inputs