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New Zealand Monetary Policy July 2024

New Zealand: Central Bank decides to leave rates unchanged in July

At its meeting on 10 July, the Central Bank decided to maintain the Official Cash Rate at 5.50%.

A further rate hike was not warranted given that inflation is expected to return to the target range in the second half of this year and that labor market pressures have eased. However, it was premature to begin cutting rates, as inflation remains well above the Bank’s 1.0–3.0% target range.

The Central Bank provided no specific forward guidance on the future level of interest rates, only stating that monetary policy will need to remain restrictive. Most of our panelists expect the Bank to cut rates by year-end, though several see rates unchanged.

ANZ Bank analysts commented on the timing of rate cuts:

“The RBNZ’s acknowledgement of the recent softer data confirm they are willing to reassess their medium-term inflation outlook. However, it was always a high bar to signal very much more than that […] given [upcoming data for]CPI could move their assessment in either direction. The clear acknowledgement of emerging downside momentum means the risks around our call for cuts from February skew a little bit more towards November, but at the end of the day the data will decide.”

In a similar vein, Goldman Sachs analysts said:

“The attending statement was dovish, noting restrictive monetary policy has ‘significantly’ reduced inflation and that the level of restrictiveness ‘will be tempered over time consistent with the expected decline in inflation pressures.’ […] From our perspective, while we had expected the statement to be incrementally dovish, the extent of changes increases the risk that the RBNZ will start cutting at its next meeting in August. Our base case is for the RBNZ to start cutting in November 2024.”

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