Our take on the latest Monetary policy review (Wed 10 Apr 2024)
OCR stays at 5.5%
Economy in line with the Bank's expectations
Inflation back within the target band this year
The key numbers...
- The Reserve Bank left the official cash rate (OCR) at 5.5% today, as expected. There was little new information in the statement, with the Bank again emphasising the need for monetary policy to remain restrictive to further reduce capacity pressures and inflation.
- The Bank indicated it is comfortable with modest reductions in retail interest rates since February, which “remain consistent with the Committee’s restrictive monetary policy stance”.
- The Bank noted near-term price pressures, including “volatile components” of the monthly Selected Price Indices, high growth in labour costs, higher oil prices and global shipping costs, and large increases in local government rates, insurance, and utility costs. However, it also reiterated its view that inflation will return to within the 1-3%pa target band “this calendar year.”
- The Bank pointed towards the caution of other central banks in easing monetary policy due to the risk of more persistent inflation. This trend provides some justification for the Bank pushing back against market expectations that the OCR could be cut sooner.
Resisting the market's desire for rate cuts sooner
OCR expectations and forecasts
...and our reaction
- At just 140 words, today’s statement by the Bank must be one of the shortest on record. However, as the “New Zealand economy continues to evolve as anticipated by the Monetary Policy Committee”, there was little new to say about activity or the outlook for monetary policy.
- Although the Bank’s statement talked about some of the inflationary pressures and justified the need to keep the OCR at its current restrictive level for some time, the Committee also discussed downside risks to the inflation outlook at its meeting, suggesting a balanced view around the inflation outlook.
- Near-term inflationary pressures (rather than anything in today’s statement) mean we have pushed back our expected timing of the first OCR cut from August to November this year.
- We expect it to be a close-run thing whether inflation gets back within the 1-3%pa target band by the end of this year, or whether it takes until early 2025. However, the Bank’s policy decisions should be sufficiently forward-looking that it is comfortable cutting interest rates by late 2024, rather than in mid-2025 as suggested in its February forecasts. The Bank is unlikely to signal these rate cuts ahead of time, to stop financial markets overreacting (as they have already shown themselves prone to doing).
Latest updates
Premium
Monetary policy review
OCR up for first time in three years, as expected
Wed 8 Jul 2026
2.5% Official cash rate from 2.25%
Inflation now expected by the Bank to peak at 3.9%pa
Further rate rises likely but uncertainty about the timingPremium
Monetary policy review
Split decision keeps OCR at 2.25% for now
Wed 27 May 2026
2.25% Official cash rate unchangedCasting vote made by Governor with a 3-3 vote split among Committee membersRBNZ forecast OCR to reach 3% by end of 2026Monetary policy review
Reserve Bank holds at 2.25%, but watches vigilantly
Wed 8 Apr 2026
2.25% Official cash rate unchangedBank places more emphasis on potential inflationary risks4.2% Annual inflation forecast to accelerate by June this yearMonetary policy review
OCR on hold, but set to lift slightly quicker
Wed 18 Feb 2026
2.25% Official cash rate (OCR) unchangedDec-26 qtr First OCR rise now expected a quarter earlier than last MPS
Sep or Oct Financial markets picking for the first increase