On Monday, New Zealand’s top central banker asserted that the inflation challenge persists. He pointed to broad financial pressures as the reason for maintaining a “restrictive monetary policy” stance.
In an appearance before a parliamentary committee, Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr asserted that the current inflation rate of 4.7% was still too high. He emphasized that the board’s goal was to decrease it further to around 2%.
“That’s why we’ve retained a restrictive monetary policy stance with the official cash rate at 5.5% and we’ll be back at the end of this month again with our updated views on the wisdom of that stance,” Orr told lawmakers at the time.
Since the bank’s last interest rate decision at the end of November, inflation has eased slightly. However, the market has reduced expectations of near-term interest rate cuts following a surprisingly strong set of local job data last week.
The bank is scheduled to meet at the end of the month.
The Reserve Bank of New Zealand, which has ruled out rate cuts until at least 2025, was one of the first central banks to withdraw pandemic-era monetary stimulus. Since October 2021, it has raised interest rates by 525 basis points to combat inflation.
While the inflation rate is lower than historical highs, it is still well above the RBNZ’s target range of 1%-3%.
During the committee session, Deputy Governor Christian Hawkesby stated that the financial system remained strong. Additionally, he mentioned that consumers were well-positioned to accommodate higher interest rates.
While it has been three months since the bank’s last financial stability report, Hawkesby said the information in it is still relevant.
“The vast majority of households have continued to manage the debt and service their mortgages, although some are struggling and falling behind,” he added.
Over the last six months, house prices have stabilized. However, central bankers express concern that the population is increasing due to high immigration, coinciding with a slowdown in residential construction.
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