Key Facts

  • The RBNZ, headed by Governor Adrian Orr, states that New Zealand’s economy is developing according to anticipations.
  • Present consumer price inflation stands above the committee’s target range.
  • The bank’s report says a restrictive monetary policy is essential to alleviate capacity pressures and inflation.
  • Economic growth remains sluggish in New Zealand but the committee hopes to maintain the OCR at a restrictive level.
  • RBNZ revealed their views on global economic conditions, stating that growth remains beneath trend and is expected to persist in its subdued state.
  • The NZ dollar slightly strengthened following the cash rate announcement, and wholesale interest rates mainly stayed the same.
  • The market continues to anticipate an OCR cut by August.
  • Effects of inflation and poor GDP results led economists to predict that the Reserve Bank would retain the cash rate at 5.5 per cent.
  • An OCR cut is expected, probably in November, following two successive quarters of economic decline, indicative of a technical recession.
  • Signs of financial stress exist such as declining retail sales and business productivity.
  • However, small and medium-sized business operators have reported increased confidence regarding the economy.

Article Summary

The Reserve Bank of New Zealand (RBNZ) has indicated that the present consumer price inflation is above the necessary range. Citing feeble economic growth, the bank asserts that a restrictive monetary policy stance is required to mitigate inflation. However, the committee overseeing the Official Cash Rate (OCR) remains confident that maintaining the OCR at a restrictive level will return consumer price inflation to the target range of 1 to 3 per cent within this year.

On the international front, the RBNZ notes that while there are regional differences, economic growth on the whole is below trend and is expected to remain subdued. Many central banks are exercising caution in relaxing monetary policy due to the continuing risk of persistent inflation.

Despite these economic challenges, confidence among small and medium-sized business operators has been on the rise. However, pessimists are not hard to find with retail sales experiencing a downturn in the last quarter of the previous year, and small and medium-sized business productivity also experiencing a decrease. The market looks forward to an OCR cut by August, but most economists predict it will probably take place in November.

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