By Lucy Cramer
WELLINGTON – New Zealand’s central bank on Wednesday kept its official interest rate at 5.5% as expected, but raised its forecast for maximum rates and delayed the start of cuts until the third quarter of 2025, blaming persistent inflation.
All 30 economists in a Reuters poll had predicted the Reserve Bank of New Zealand (RBNZ) would leave interest rates at a 15-year high for a seventh meeting, but its gloomy report lifted New Zealand and bond yields.
“Annual consumer price inflation remains within the group’s target range of 1 to 3 percent, and the component of household services inflation persists,” the central bank said in a statement.
RBNZ meeting minutes indicated the central bank considered raising interest rates at the meeting.
The New Zealand dollar rose 0.9% to US$0.6147, its highest level since early March, while two-year swap rates reversed earlier declines to rise 5 basis points to 4.935%.
According to the RBNZ statement, the committee agreed that interest rates should be kept at a controlled level to ensure inflation reaches its target within a reasonable timeframe.
The RBNZ raised its top rate to 5.7% from 5.6%. It now expects to start cutting interest rates in the third quarter of 2025, later than expected in the second quarter of 2025.
ASB Chief Economist Nick Duffley said the report was tougher than expected and was significantly more concerned about the strength of services sector inflation, with some aspects of inflation being less sensitive to interest rates.
The RBNZ said weaker capacity pressures and labor market slack were dampening domestic inflation, while the decline was moderated by less interest rate-sensitive sectors of the economy.
The RBNZ, a leader among its peers in withdrawing pandemic-era stimulus, has raised rates by 525 basis points from October 2021, in the most intense tightening since the introduction of the official cash rate in 1999.
New Zealand’s annual inflation has eased in recent months and was 4.0% in the January-March period, and is expected to return to its target band in the second half of the year.
The rate hikes have weighed heavily on the economy, which according to the latest data was below the central bank’s earlier expectations. The country entered a technical recession after gross domestic product (GDP) fell 0.1% in the fourth quarter.
(Reporting by Lucy Cramer; Additional reporting by Stella Q; Editing in Spanish by Ricardo Figueroa)
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