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MNI RBNZ Review - August 2023: Prolonged Pause

EXECUTIVE SUMMARY:

  • The RBNZ left the cash rate at 5.5% at its August meeting as was widely expected as restrictive policy is constraining domestic demand but it needs to remain “restrictive” for the “foreseeable future” in order to bring inflation back to target.
  • The revised OCR profile showed rates around 5.5% for almost two years, which Governor Orr is “confident” should be enough to return inflation to target. His comments signal that the RBNZ is on hold for now but continues to “watch, worry and wait”. But Orr doesn’t feel a “rush” to change rates in either direction.
  • The OCR profile was revised up with the peak at 5.6% in H1 2024, which Orr said was not a signal but the model’s reaction to outcomes already seen. The revisions seem to suggest more that rates will be “higher for longer” rather than the next move will be a hike. Thus it looks as though there will be an extended pause well into 2024 and possibly to early 2025.

Click to view full review:

MNI RBNZ Review - August 2023.pdf


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