No “Rush” To Change Rates But “Higher For Longer” To Contain Inflation

RBNZ Governor Orr has spoken to Bloomberg TV and stated that the RBNZ doesn’t feel a “rush” to change rates any time soon but that it is firmly in the “higher for longer” camp. Its OCR profile published yesterday has rates around 5.5% for almost two years, which the central bank believes is “restrictive”. Orr said today that that should be enough to return inflation to target but the RBNZ is in a position to tighten or loosen policy depending on its assessment of new information. These comments, in addition to Tuesday’s, signal that the RBNZ is on hold for now.

• Orr reiterated that the 10bp increase in the OCR projections for H1 2024 is not a signal but a projection. There are too many uncertainties to be able to give “forward guidance”. He believes that a rate at 5.5% balances risks around inflation but he’s aware that core inflation is sticky and that the effect of increased migration is uncertain. But the focus remains on the medium-term.
• With rates restrictive the RBNZ has the time to “watch, worry and wait”.
• The projected recession is the bare minimum that NZ requires to contain inflation, as growth needs to be below potential. There should be sustained, subdued domestic demand to achieve this.
• Orr was not worried about NZD weakness as it can be comfortably explained.
• Any adjustments to the budget from a change in government in October will be important to the RBNZ.