[RBNZ] February Interest Rate Decision: No Rate Cuts Until 2025

Remarks of Officials

Summary:

The latest forecasts indicate a slight decrease in the likelihood of interest rate hikes this year, but no interest rate cuts are expected before 2025.

The Reserve Bank of New Zealand (RBNZ) convened its latest policy meeting on February 28th, maintaining interest rates unchanged for the fifth consecutive meeting. The monetary policy statement reads as follows.

Global economic growth remains below trend, with a slight decline in import prices and services contributing to recent quarters' inflation downturn. However, the Red Sea incident has escalated global shipping costs, exacerbating recent inflationary pressures. There is considerable uncertainty regarding the scale and duration of the rise in transportation costs. The committee has consistently observed inflation trending downwards but remaining above target levels. Restrictive policies help alleviate inflationary pressures, and policy needs to remain restrictive to ensure inflation returns to target.

Economic developments are in line with expectations, with overall inflation slightly below expectations and wage inflation moderating.

The labor market has experienced some slowdown, though certain indicators have only slightly decelerated. Changes in labor demand lag behind broader economic activities. However, labor market developments align with expectations, and it is anticipated that labor market capacity pressures will further ease. Looking ahead, the labor market is expected to continue towards looseness, with job vacancies decreasing and unemployment rates rising.

GDP for Q4 2023 declined by 0.3% (production-based), significantly lower than November's expectations. Despite better-than-expected growth in the service sector, manufacturing performance has been relatively weak. Manufacturing PMI has shrunk for 11 consecutive months, and the number of building consents continues to decline, indicating weakening residential construction activity for the coming year. Economic growth is forecasted to remain subdued in 2024.

Interest rates are expected to be maintained at current levels for an extended period, facing persistent high inflation, with the risk of interest rate hikes still present. Latest forecasts suggest a slight decrease in the likelihood of interest rate hikes this year, but no interest rate cuts are expected before 2025. Risks to the inflation outlook have become more balanced; however, overall inflation remains above the 1-3% target range, limiting the committee's tolerance for unexpected upward inflationary pressures. The committee is reluctant to consider a shift towards monetary easing policies as price pressures persist, and it is concerned that high inflation expectations may become entrenched.

RBNZ Monetary Policy Statement February 2024

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[RBNZ] February Interest Rate Decision: No Rate Cuts Until 2025

RBNZ Monetary Policy Statement February 2024

Risk Disclosure