SYDNEY — The Reserve Bank of New Zealand left interest rates unchanged as expected at a policy meeting on Wednesday, while indicating that interest rates will need to stay high for some time yet.
The official cash rate was held steady at 5.50% as expected by economists.
“The committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1 to 3% per annum, while supporting maximum sustainable employment,” the RBNZ said in a statement.
The on-hold decision comes amid a technical recession for the agriculture-rich economy and recent data showing unemployment is moving higher. Unemployment was 3.6% in the second quarter, compared with 3.4% in the first quarter.
The economy contracted 0.1% during the three months through March, following a 0.7% contraction the prior quarter, and remained weak through the second quarter, according to Stats NZ.
The RBNZ has been among the most hawkish of global central banks in recent years, 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.
“Activity continues to slow in parts of the economy that are more sensitive to interest rates. Labor shortages are easing as overall demand softens and immigration adds to labor resources. Headline inflation and inflation expectations have declined, but measures of core inflation remain too high,” the RBNZ added.
There is a near-term risk that activity and inflation measures don’t slow as much as expected, the central bank added.