RBNZ Keeps Interest Rates Steady, Says Policy Could Be Restrictive for Some Time

By David Winning

SYDNEY–New Zealand’s central bank kept interest rates unchanged ahead of a national election later this month where cost-of-living pressures and economic management are top concerns of voters.

The Reserve Bank of New Zealand left the official cash rate at 5.50% on Wednesday as expected by economists, but maintained a hawkish bias as it continues to assess whether it has already done enough to bring inflation under control.

“The Committee agreed that interest rates may need to remain at a restrictive level for a more sustained period of time, to ensure annual consumer price inflation returns to the 1 to 3% target range and to support maximum sustainable employment,” the RBNZ said in a statement.

The RBNZ is among the global central banks that have raised interest rates at a historically rapid clip after inflation began to run hot during the Covid-19 pandemic. While some progress has been made in weakening price pressures, central bankers around the world say they are alert to risks that include resurgent energy prices and strong competition for housing that has pushed rents higher.

In New Zealand, second-quarter gross domestic product growth was unexpectedly strong, raising the risk that the RBNZ would judge the economy to be running above full capacity again. Inflation in the 12 months through June was 6.0%, well above the central bank’s target band, albeit down from a peak of 7.3% a year earlier.

Ahead of Wednesday’s meeting, economists at Westpac said recent data pointed in the direction of increased concern about the potential persistence of inflation pressures. Still, it believed the RBNZ should be comfortable with current market pricing for the cash rate in November and beyond.

The RBNZ on Wednesday said interest rates are constraining economic activity and reducing inflationary pressure as required. It expects inflation to fall to within the target band by the second half of 2024.

Still, the central bank called out several risks, including global oil prices, which it said could lift domestic costs over coming months and lead to headline inflation being higher than expected.

The cost of living has become a major campaign theme for the Oct. 14 election that pits the ruling center-left Labour Party, headed by Prime Minister Chris Hipkins, against the center-right National Party led by former airline executive Christopher Luxon.

Asked by Essential Research to rate how important each party’s solutions are on a range of issues, 65% of surveyed voters in New Zealand ranked reducing cost-of-living pressures as very important. Managing the economy was ranked as very important by 61% of voters in the same survey published last month, ahead of accessing health services and addressing the crime rate.

Write to David Winning at david.winning@wsj.com

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