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New Zealand central bank blames inflation for restrictive policy

Published 02/11/2024, 09:32 PM
Updated 02/11/2024, 09:35 PM
© Reuters. FILE PHOTO: Pedestrians walk past as a security guard stands in the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. Picture taken July 3, 2017.  REUTERS/David Gray/File Photo

By Lucy Craymer and Renju Jose

WELLINGTON (Reuters) - New Zealand's top central banker on Monday said the inflation challenge was still not over and cited broad financial pressure for retaining a "restrictive monetary policy" position.

Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr, appearing before a parliamentary committee, said the current inflation rate at 4.7% was still too high and that the board's aim was to continue to slow it down to around 2%.

"That's why we've retained a restrictive monetary policy stance with the official cash rate at 5.5% and we'll be back at the end of this month again with our updated views on the wisdom of that stance," Orr told lawmakers.

Since the bank's last interest rate decision at the end of November, inflation has eased slightly but the market has reduced expectations of near-term interest rate cuts following a surprisingly firm set of local jobs data last week.

The bank is due to meet at the end of the month.

The RBNZ, which has ruled out rate cuts until 2025 at the earliest, was one of the first central banks to withdraw pandemic-era monetary stimulus and has lifted rates by 525 basis points since October 2021 to curb inflation.

The inflation rate, while below historic highs, is well above RBNZ's target band of 1% to 3%.

Deputy Governor Christian Hawkesby told the committee that the financial system remained strong and consumers were in a good position to allow for higher interest rates.

While it has been three months since the bank's last financial stability report, the information in it remained pertinent, Hawkesby said.

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"The vast majority of households have continued to manage the debt and service their mortgages, although some are struggling and falling behind," he said.

House prices have stabilised over the last six months though central bankers said they were concerned the population was surging, due to high immigration, at a time when residential construction was slowing.

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