SMS Finance

RBNZ holds steady amid turmoil

Amid the turmoil on Wednesday, with a weakening Aussie dollar, a strong greenback, and weak gold, the Reserve Bank of NZ’s decision to keep its official cash rate at 5.50% passed almost unnoticed.

The Kiwi central bank followed other major central banks in maintaining its official rate to assess the evolving situation. The US dollar is surging due to growing concerns about America’s political stability, and bond yields are rising as major investors exit US dollar debt.

The RBNZ’s decision was unsurprising in this context. In their statement, they noted, “Interest rates are constraining economic activity and reducing inflationary pressure as required. 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, leading to an expected decline in spending growth.”

They also mentioned global economic trends, stating, “Globally, economic growth remains below trend, and headline inflation has eased for most of our trading partners. Core inflation has also eased, albeit to a lesser extent.”

The statement continued, “Weakening global demand is putting downward pressure on New Zealand export volumes and prices, except for oil. While the imbalance between supply and demand in the New Zealand economy continues to moderate, a prolonged period of subdued activity is needed to reduce inflationary pressure.”

The RBNZ acknowledged near-term risks, explaining, “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.”

In conclusion, the RBNZ emphasised the need to maintain a restrictive OCR level to ensure annual consumer price inflation returns to the 1 to 3% target range and support maximum sustainable employment. The bottom line is that no change is needed at this time, as inflation remains too high. The RBA, under new leadership, will also be watching and waiting.

Scroll to Top