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New Zealand Monetary Policy February 2024

New Zealand: RBNZ stands pat in February

At its 28 February meeting, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at 5.50%, as markets had anticipated. The Bank hiked rates by a cumulative 525 basis points between October 2021 and May 2023—its most aggressive hiking cycle since 1999—but has since held them steady.

The Bank decided to stand pat as inflation remained above its 1.0-3.0% target range, even though price pressures and inflation expectations declined, dampened by the restrictive monetary policy stance and a realignment between demand and supply capacity. The RBNZ said that persistent above-target inflation limited its “ability to tolerate upside inflation surprises”.

Looking forward, the Bank stated that “the OCR needs to remain at a restrictive level for a sustained period of time” to ensure inflation returns to the Bank’s tolerance band. Our panelists expect rates to be reduced ahead this year, as inflation moderates further from current levels.

The next monetary policy meeting is scheduled for 22 May.

Commenting on the outlook, Lee Sue Ann, economist at UOB, stated:

“The overall take from the RBNZ is that the risk of further rate hikes has lessened, which reinforces our view that the OCR has peaked in this current cycle. However, rate cuts will also probably not occur as quickly as previously expected. We are pushing back our current rate cut view from Q2 2024 to Q4 2024.”

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