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MNI RBNZ WATCH: Rates Rest At Restrictive Level

(MNI) Sydney

The Reserve Bank of New Zealand fell in line with market expectations and its own signalling Wednesday, holding the Official Cash Rate at 5.5% as the country’s economy continues to slow and inflation globally moderates.

The move, while anticipated (MNI RBNZ WATCH: OCR Likely To Hold At 5.5% After May Steer), also saw a softening in market peak-rate expectations with the overnight index swap spread downgrading its expectations to 5.6% by November from about 5.75% noted prior to the meeting.

In its statement, the RBNZ board said the OCR remained restrictive, labour market pressure had dissipated, business reported slower demand and the global economic outlook remained weak. “Inflation is expected to continue to decline from its peak, and with it measures of inflation expectations,” the board noted. “Core inflation is expected to decline as capacity constraints ease.”


The RBNZ believes, while employment remains above its maximum sustainable level, labour shortages have eased, partly in response to an uptick in migrants.

Stats NZ data released in June showed 181,100 migrant arrivals for May 2023, well above the long-term average of 119,200 for pre-covid May years. Net migration has risen strongly since mid-2022 (see chart).

“The net impact of immigration on overall capacity pressures remains uncertain,” the board noted. “The ongoing recovery in tourism spending is supporting demand.”


The board also pointed to the slowing global economy, noting inflation pressure continued to ease.

U.S. CPI, published after the RBNZ decision, added 0.18% m/m, 0.1% lower than expected and the smallest monthly increase since August 2021 (see: MNI BRIEF: US June CPI Surprises To Downside).

The Board noted supply-chain normalisation had assisted the decline in global inflation. “The weaker global growth has led to lower export prices for New Zealand's goods,” the board added.

The month ahead will provide greater clarity over the RBNZ’s next move with June quarter CPI due July 18, while Stats NZ will publish an updated labour market report August 2. The RBNZ will next meet August 16.

Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.
Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.

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