Reserve Bank of New Zealand's policy stance




Despite unemployment rising above pre-pandemic levels, the Reserve Bank of New Zealand’s sturdy monetary policy stance will not change.

Unemployment in the March quarter reached 4.3%, well above the 2019 average (the year before the pandemic broke) of 4.11%.

But that’s not enough for the RBNZ to relax its interest rate regime, with the official cash rate left steady at 5.5% for yet another time on Wednesday.

That’s still well ahead of the cash rate in Australia, which stands at 4.35%.

But there was a hint that a relaxation might be in the offing: "Restrictive monetary policy has reduced capacity pressures in the New Zealand economy and lowered consumer price inflation. Annual consumer price inflation is expected to return to within the Committee’s 1 to 3 percent target range by the end of 2024,” the RBNZ said in Wednesday’s post-meeting statement.

"The welcome decline in inflation, in part, reflects lower inflation for goods and services imported into New Zealand. Globally, consumer price inflation has declined from 30-year highs in many advanced economies. However, services inflation is receding slowly, and expected policy interest rate cuts continue to be delayed."

"In New Zealand, pressures in the labor market have eased. Businesses are employing more cautiously in line with weak economic activity, while the number of people available to work has increased due to recent high net inward migration. Wage growth and domestic spending are easing to levels more consistent with the Committee’s inflation target.

The central bank, however, made it clear that it is worried about ‘sticky inflation’ in service sector areas of the economy.

"While weaker capacity pressures and an easing labor market are reducing domestic inflation, this decline is tempered by sectors of the economy that are less sensitive to interest rates.

These near-term factors include, for example, higher dwelling rents, insurance costs, council rates, and other domestic services price inflation. A slow decline in domestic inflation poses a risk to inflation expectations.”

New Zealand’s CPI rose at an annual 4% in the three months to March, down from the 4.7% rate in the December 2023 quarter.

That saw the RBNZ conclude its Wednesday statement by saying that "Annual consumer price inflation remains above the Committee’s 1 to 3 percent target band, and components of domestic services inflation persist. The Committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to the target within a reasonable timeframe.”


Name Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.