The Reserve Bank of New Zealand's Monetary Policy Committee has left the official cash rate unchanged at 5.50 percent for the fifth consecutive meeting, in line with the consensus forecast. Prior to this pause, officials had increased policy rates by a cumulative 525 basis points beginning in November 2021 as part of efforts to return inflation to their target range of 1.0 percent to 3.0 percent.

Headline CPI inflation fell to 4.7 percent in the three months to December from 5.6 percent in the three months to September, with core inflation falling from 5.8 percent to 4.4 percent, its lowest level since mid-2021. Officials still expect inflation will decline back to the target range in the second half of 2024 and now also expect a fall to the mid-point of that range in 2025. However, although they judge risks to the inflation outlook to be balanced, they also consider that"from a monetary policy perspective, there remains less capacity to absorb upside inflation surprises, relative to downside surprises".

Reflecting this assessment, officials concluded that"interest rates need to remain at a restrictive level for a sustained period of time". They also advised that they expect policy rates will need to stay around current levels for"an extended period", with rate cuts not projected to take place until 2025.

Though inflation has remained stubbornly high, at 4.7 percent in the fourth quarter, the Reserve Bank of New Zealand has been keeping policy steady. And once again the consensus for February's meeting is no change at 5.50 percent.

Meeting at roughly six week intervals, the Reserve Bank of New Zealand meets and decides whether to change or maintain New Zealand's Official Cash Rate. The RBNZ is known for its clarity regarding monetary policy intentions, thus the result is usually foreseen in advance. The decision aligns with the Reserve Bank of New Zealand's monetary policy to spur or slow economic growth or affect the exchange rate.

The RBNZ maintains an inflationary target range of 1 percent to 3 percent and will change rates to keep it within such a range, making rate decisions fairly predictable. Rate changes are significant nonetheless, affecting interest rates in consumer loans, mortgages, and bond rates. Increases or even expectations for rate increases tend to cause the New Zealand Dollar to appreciate, while rate decreases cause the currency to depreciate.

The RBNZ determines interest rate policy at it policy meetings. These meetings occur roughly every six weeks and are one of the most influential events for the markets. Market participants speculate about the possibility of an interest rate change. However, since the Bank is known for its clarity in setting policy, the result is usually built into the markets in advance. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

Frequency
Eight times a year.