New Zealand keeps rates on hold but warns hikes may not be over
By Lucy Craymer
WELLINGTON (Reuters) — New Zealand's central bank held the cash rate steady on Wednesday, but noted inflation remained too high and that further policy tightening might be needed if price pressures did not ease.
The Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) at 5.5% as expected, but the hawkish tone of the statement surprised many in the market, pushing the New Zealand dollar and bond yields higher.
While the central bank said it was confident the current level of rates was restrictive, persistent demand and price pressures were of concern given the elevated level of core inflation.
«If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further,» it said in a statement.
The RBNZ decision is the first since New Zealand elected a new government headed by Prime Minister Christopher Luxon last month, following a campaign in which the central bank came under heavy political scrutiny.
The new centre-right government said on Wednesday it would start the legislative process to return the central bank to a single inflation targeting mandate in its first 100 days in office.
That change would remove the requirement for the RBNZ to consider employment when setting the cash rate and focus solely on inflation.
RBNZ Governor Adrian Orr told a media conference on Wednesday he had met with Luxon and new finance minister Nicola Willis on Tuesday, describing talks as «incredibly constructive» and focused.
«The number one job in hand for us is to reduce inflation,» he said. He added the bank had not been consulted on returning to a single mandate but expected it would be.
New Zealand's annual inflation has come off in recent quarters and is currently
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