Reserve Bank of New Zealand Keeps Interest Rates Unchanged

The Reserve Bank of New Zealand (RBNZ) announced on Wednesday that they would be keeping interest rates unchanged at 5.50%. This decision was expected by economists, but the RBNZ emphasized that interest rates will need to stay high for the foreseeable future.

According to a statement from the RBNZ, they are confident that maintaining a restrictive level of interest rates will help bring consumer price inflation back within their target range of 1 to 3% per annum, while also supporting maximum sustainable employment.

The decision to keep rates on hold comes at a time when New Zealand is experiencing a technical recession, particularly affecting its agriculture-rich economy. Recent data has also shown an increase in unemployment, with the second quarter seeing a rate of 3.6%, up from 3.4% in the previous quarter.

Stats NZ reported that the economy contracted 0.1% in the three months leading up to March, following a 0.7% contraction in the prior quarter. The economy remained weak throughout the second quarter as well.

The RBNZ has gained a reputation for being one of the most hawkish central banks globally in recent years. While other central banks paused to assess the impact of earlier tightening on their economies, the RBNZ has been more inclined to implement significant interest rate increases.

However, the RBNZ acknowledged that certain sectors of the economy, particularly those sensitive to interest rates, have been experiencing slower activity. Labor shortages are also easing due to softer overall demand and increased immigration. Although headline inflation and inflation expectations have decreased, measures of core inflation remain higher than desired.

The central bank also highlighted the near-term risk that activity and inflation measures may not slow as much as anticipated.