BUSINESS-ECONOMY
The Central Bank of New Zealand held the cash rate unchanged at 5.5 per cent on Wednesday but suggested an easing of policy when, as expected, inflation comes off the boil. The Central Bank of New Zealand held the cash rate unchanged at 5.5 per cent on Wednesday but suggested an easing of policy when, as expected, inflation comes off the boil. The decision was in line with forecasts by all economists polled by Reuters, but the dovish tone of the commentary was surprising to many from the Reserve Bank of New Zealand, also known as RBNZ. "The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures," the statement said. At the May meeting, the RBNZ said that the policy would continue to be restrictive for a "sustained period" and pointed to higher rates if inflation did not abate. On the back of the announcement, the New Zealand dollar slid 0.74 per cent to $0.6085 and hit a 16-month low against the Australian dollar. Two-year swap rates eased 11 basis points to 4.6850 per cent, a six-month low, implying an October cut of a 25-basis-point move. "The RBNZ sounded rather dovish in its commentary," said Abhijit Surya, Australia and New Zealand economist at Capital Economics in a note. "The Committee's messaging gives us greater confidence that the Bank will commence its easing cycle in November." The central bank revised its inflation outlook, saying monetary policy had "significantly" reduced consumer price inflation, Surya added. The RBNZ said it expected headline inflation to return to the 1 per cent to 3 per cent target range in the second half of this year, from 4 per cent in the first quarter. "Some domestically generated price pressures remain strong. But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions," the central bank said. It does not release updated economic indicators or the forecast official cash rate track at Monetary Policy Reviews like that announced on Wednesday. A frontrunner in withdrawing pandemic-era stimulus among its peers, the RBNZ has hiked rates by 525 basis points since October 2021 to contain high inflation—the most aggressive tightening since the advent of an official cash rate in 1999. The rate hikes have grossly decelerated the economy, though recent statistics indicated that New Zealand had emerged from a technical recession during the first quarter of 2024 with 0.2 per cent growth. The RBNZ is now adopting a very cautious stance while waiting to see if inflation picks up further and to what extent as it grapples with its dual mandate of taming inflation while at the same time giving room for the economy to grow. None
What’s New
Spotlight
Advertisement
Featured News
Latest From This Week
Popular News
