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New Zealand Monetary Policy May 2024

New Zealand: Central Bank decides to keep rates steady in May

At its meeting on 22 May, the Central Bank decided to keep the Official Cash Rate (OCR) at 5.50%. The move marked the seventh consecutive hold.

The Central Bank’s decision not to cut was primarily driven by inflation which was above the Bank’s 1.0–3.0% target range, amid persistent services price pressures. On the flipside, a further hike was not warranted given that inflation did decline in Q1 and that labor market pressures are easing.

The Central Bank suggested that interest rates may need to stay higher for longer in order to tame price pressures, amid inflation risks which it judged to be skewed to the upside. Most of our panelists expect the Bank to cut rates by year-end, though several now see rates unchanged.

Commenting on the outlook, analysts at Nomura stated:

“With a continuing demonstration of its tolerance for macro pain and fresh observations about low rates of productivity, a smaller negative output gap, lower rates of potential growth and a higher neutral cash rate, we feel compelled to revise our RBNZ cash rate projections in a less dovish direction. We push back our first forecast RBNZ rate cut, to November from August. We still see a terminal rate of around 3.50% by end-2025. We also flag that we may need to fine tune this profile, once we have seen the budget on 30 May.”

Goldman Sachs’ analysts concurred:

“The RBNZ appears unlikely to pivot dovish in the near term. We now expect the RBNZ to start easing in November 2024 (prior: August), with the MPC likely to want to see further evidence of disinflation in both the 2Q2024 CPI data (due 17 July) and 3Q2024 data (due 17 October) before lowering rates.”

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