By Lucy Cramer
WELLINGTON, Oct 4 (Reuters) – New Zealand’s central bank kept interest rates steady on Wednesday, with policymakers more optimistic that earlier hikes would help keep inflation down as desired.
The Reserve Bank of New Zealand (RBNZ) kept the spot rate at 5.5%, the highest in 15 years, and said monetary policy would need to be tightened to control inflation, but stopped short of suggesting new increases.
“Interest rates restrain economic activity and reduce inflationary pressure,” the central bank said in a statement.
The result was in line with 27 economists polled by Reuters, but the softer-than-expected stance sent the New Zealand dollar down 0.5% to $0.5878 in three weeks.
By the time the market cut the probability of a hike from 55% to 45% in November, national debt futures had recovered almost all lost ground and rose higher.
“We view the report as worse than we expected,” Westpac NZ chief economist Kelly Eckholdt said.
“We had expected the RBNZ to produce a report that broadly supported the current market assessment of a 50/50 chance of a 25 basis point hike in November. The report suggests the outlook is very bearish.”
The RBNZ said the monetary policy committee agreed that interest rates should remain at a controlled level for the foreseeable future to ensure consumer price inflation returns to its target range of 1% to 3%.
However, even as the central bank warned that activity and inflation may not slow as much as needed, monetary chiefs maintained a subdued economic outlook and expected spending growth to continue to slow.
Central banks around the world, led by the US Federal Reserve, have begun to slow their tightening campaign as inflation has eased from dangerously high levels. However, in many advanced economies, including New Zealand, monetary policymakers say inflation is at levels that require a new period of tighter monetary conditions.
(Reporting by Lucy Kramer; Editing in Spanish by Benjamin Mejias Valencia)
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