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Reserve Bank leaves official cash rate at 5.5%

Plus and minus sign with ascending graph in front of Reserve Bank office
Photo: RNZ

The Reserve Bank stuck to the script and left the official cash rate unchanged at 5.5 percent, confirming an end to its 21-month tightening campaign.

The central bank, as signalled in May, said the current level of the OCR was having the desired effect of slowing the economy and inflation, but dashed any hopes that it might loosen policy any time soon.

"The level of interest rates are constraining spending and inflation pressure as anticipated and required," the Monetary Policy Committee said in a statement.

"The committee agreed that the OCR will need to remain at a restrictive level for the foreseeable future, to ensure that consumer price inflation returns to the 1-to-3 percent annual target range, while supporting maximum sustainable employment."

It said inflation, currently at an annual rate of 6.7 percent, was expected to keep falling as would inflation expectations, with a slowing global economy, an easing in supply chain disruptions, cooler labour and housing markets.

It estimated that inflation would be back in the target band in the second half of 2024.

The summary of the MPC meeting showed no concerns about the strong surge in migration, which it said was filling skills shortages while adding some demand pressure for housing.

The committee acknowledged the high interest rates were causing pain with some borrowers.

"However, early indicators point to only a moderate increase in stressed lending over the coming months and non-performing loans remain at very low levels," as it forecast an average mortgage rate of around 6 percent next year.

ASB chief economist Nick Tuffley said the decision and statement had no surprises.

"We remain of the view that the RBNZ has done enough to get inflation under control. The bank will remain wary for the time being so won't relax."

He said that meant the OCR would stay up around current levels well into next year.

"We don't expect OCR cuts until May next year, give or take," Tuffley said.

A minority view among economists is that the RBNZ will be forced to tackle stubborn inflation pressures with another 25 basis point rise to 5.75 percent, possibly in November.

Speaking from Vilnius in Lithuania earlier today, Labour leader Chris Hipkins ruled out introducing a wealth tax or capital gains tax if Labour was re-elected in October.

Finance Minister Grant Robertson said today's announcement would be welcomed by many.

"The Reserve Bank did its tightening cycle earlier than a lot of other central banks and now they feel comfortable to stop doing that, I'm sure it will be welcomed by a lot of people."