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RBNZ keeps interest rates steady, sees delayed cuts amid sticky inflation

Published 05/21/2024, 10:13 PM
© Reuters.

Investing.com-- The Reserve Bank of New Zealand kept interest rates steady as expected on Wednesday, but flagged a potential delay in interest rate cuts due to headwinds from sticky inflation. 

The RBNZ kept its official cash rate at 5.50%, as expected by markets, marking the seventh consecutive meeting where the bank left rates unchanged. 

While the bank had marked an end to its rate hike cycle in mid-2023, it is now expected to keep rates high for longer, amid some signs of sticky inflation in the country.

“The welcome decline in inflation in part reflects lower inflation for goods and services imported into New Zealand…  However, services inflation is receding slowly, and expected policy interest rate cuts continue to be delayed,” the RBNZ said in a statement. 

New Zealand consumer price index inflation eased further in the first quarter of 2024. 

But the reading still remained well above the RBNZ’s 1% to 3% annual target range- indicating that the bank was likely to keep rates at current levels to keep bringing down inflation. 

The central bank said that it expects inflation to fall within its target band only by end-2024. 

The RBNZ was among the first major central banks to begin hiking interest rates in response to an inflation spike following the COVID-19 pandemic. But its efforts to stymie inflation were in part offset by a series of devastating natural disasters, as well as robust labor market conditions. 

The latter, along with stubborn services inflation, is likely to see the RBNZ further delay any potential rate cuts. Data from Bloomberg showed the bank’s first rate cut will be later in 2025. 

The New Zealand dollar surged 0.9% on the prospect of high for longer rates. 

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