New Zealand rate pause mirrors Aussie inflation caution

In a decision announced on Wednesday, Reserve Bank of New Zealand (RBNZ) followed Australia's lead from a day earlier, opting to take stock given the uncertain economic outlook.

The decision is seen as not a rate cut denied - just a rate cut delayed.

"If medium-term inflation pressures continue to ease as projected, the (RBNZ) expects to lower the official cash rate further," governor Christian Hawkesby said.

The central bank debated a 25 basis point cut or a hold before finding consensus to stay put, he said.

The decision was not a shock, with most economists tipping a hold.

ANZ chief economist Sharon Zollner said she expected cutting to resume with another cut at the next meeting on August 20, and then some.

"The risks tilt toward medium-term inflation being too low rather than too high," she said.

Mark Smith, senior economist at ASB, said New Zealand's official cash rate was currently in the "Goldilocks zone" and would end the year at three per cent.

"Our view was that there was a high bar for the RBNZ to sanction a further cut given the mixed run of events since the May MPS (monetary policy statement)," he said.

Like Australia, headline inflation in New Zealand is back inside the RBNZ's target band, last measured at 2.5 per cent in April.

However, New Zealand has taken a decidedly different economic path in the post-pandemic tumult, falling into a deep recession in 2024.

The RBNZ cut from a high of 5.5 per cent to current levels in the past six meetings.

Mr Hawkesby said the RBNZ's monetary policy committee was split on just how strongly the Kiwi economy was rebounding.

"Some members highlighted that prolonged economic uncertainty might induce further precautionary behaviour by households and firms," he said.

Such actions risk becoming mutually reinforcing and weigh on aggregate demand, slowing the economic recovery.

"In contrast, other members emphasised stronger household consumption and business investment in the March quarter, along with higher surveyed investment intentions in the June quarter, as possible signals of a recovery in interest rate sensitive parts of the economy," Mr Hawkesby said.

The government is hoping for lower rates, and soon, to get the Kiwi economy firing.

Unemployment is up, house prices remain slumped from 2022 highs and business lending has flatlined.

Acting Prime Minister David Seymour, filling in for the holidaying Chris Luxon, acknowledged "some disappointment" among Kiwis hoping for a fresh cut.

"A quarter of mortgage holders are scheduled to re-fix in the next two months and they'll still be getting the benefit of earlier cuts in (official cash rates)," he said.

"They're typically coming from (interest rates beginning with) 6 or 7s that they were seeing from the peak of the OCR, moving down to the 4s and 5s.

"It's also showing up in rents that have been dropping over the past year."

Australian Associated Press