By James Glynn
SYDNEY--The Reserve Bank of New Zealand left interest rates unchanged at its policy meeting on Wednesday but warned that policy settings will need to remain tight for some time yet. The official cash rate was left on hold at 5.5%, its highest level in 14 years, as widely expected. The RBNZ had hiked at each of the 12 prior policy meetings since October 2021. "The committee agreed that interest rates will need to remain at a restrictive level for the foreseeable future, to ensure consumer price inflation returns to the 1 to 3% target range while supporting maximum sustainable employment," the RBNZ said in a statement. The decision to hold interest rates steady came after data recently confirmed that New Zealand's economy was in recession as high interest rates and storm damage across the country's north put the brakes on activity. The economy contracted 0.1% during the three months through March, following a 0.7% contraction in the prior quarter, according to Stats NZ. That result was weaker than expected by the central bank, which had projected 0.3% growth in the March quarter. The RBNZ has been among the most hawkish of global central banks, at times opting for outsize interest rate increases even as counterparts elsewhere in the world took a timeout to digest the impact of earlier tightening on their economy. "The RBNZ is viewed as a test case for other central banks globally which have followed its lead in tightening monetary policy," said Tony Sycamore, market analyst at IG Australia. The pause by the RBNZ was in part due to storm damage earlier in the year. Cyclone Gabrielle brought widespread flooding and killed 11 people in February, reducing spending and home-building activity in the quarter. A cyclone recovery plan was the centerpiece of the government's annual budget last month, with economists warning that the extra spending could stimulate the economy and add to inflation. The budget included 1.1 billion New Zealand dollars (US$ 687 million) to fund the recovery from the storm, with the total cost of the disaster estimated to be as high as NZ$ 14.5 billion. New Zealand is also experiencing a surge in migration and tourism after its borders were reopened, which is likely to support the economy this year. Write to James Glynn at james.glynn@wsj.com