Official cash rate on hold

The Reserve Bank of New Zealand has left the official cash rate (OCR) unchanged at 5.5 per cent following the latest meeting of its monetary policy committee.

There was no indication in an October 4 announcement that further rate rises are on the horizon, but the Reserve Bank says the committee agreed the OCR “needs to stay at a restrictive level to ensure that annual consumer price inflation returns to the one-to-three per cent target range”.

“Interest rates are constraining economic activity and reducing inflationary pressure as required,” it explains.

“Demand growth in the economy continues to ease. While GDP growth in the June quarter was stronger than anticipated, the growth outlook remains subdued. 

“With monetary conditions remaining restrictive, spending growth is expected to decline further.”

The Reserve Bank says global economic growth remains below trend and headline inflation has eased for most of New Zealand’s trading partners. It notes core inflation has also eased, but to a lesser extent. 

Its statement continues that weakening global demand is putting downward pressure on New Zealand export volumes and prices. Apart from oil, global import prices have eased. 

“While the imbalance between supply and demand continues to moderate in the New Zealand economy, a prolonged period of subdued activity is required to reduce inflationary pressure,” it says. 

“There is a near-term risk that activity and inflation do not slow as much as needed. Over the medium term, a greater slowdown in global economic demand, particularly in China, could weigh more on commodity prices and New Zealand export revenue.”