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New Zealand central bank holds rates at 5.5%, to remain restrictive

Investing.com -- The Reserve Bank of New Zealand kept interest rates steady on Wednesday, but said that rates will remain higher for longer as the bank moves to curb overheated inflation levels.

The RBNZ held its official cash rate (OCR) at 5.50%, meeting analyst expectations for a pause. The move was largely telegraphed by the bank in its prior meeting, where the bank said it will “watch, worry and wait,” for inflation to reach more manageable levels.

The central bank reiterated this message on Wednesday, stating that rates will remain higher for longer in order for inflation to reach the RBNZ’s 1% to 3% annual target.

The New Zealand dollar trimmed some intraday gains after the RBNZ decision, and was trading up about 0.3%.

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“Inflation is expected to continue to decline from its peak, and with it measures of inflation expectations. Core inflation is expected to decline as capacity constraints ease. While employment is above its maximum sustainable level, there are signs of labor market pressures dissipating and vacancies declining,” the RBNZ’s Monetary Policy Committee said in a statement.

Consumer price index inflation had fallen to 6.7% from 7.2% in the first quarter, with a reading for the second quarter due next week.

Wednesday’s pause brings to close a two-year rate hike cycle by the RBNZ, which was among the first global central banks to begin hiking interest rates in the face of a post-COVID inflationary spike. The bank hiked rates by a cumulative 500 basis points since June 2021, although its moving early did little to quell stubborn inflation in the country.

New Zealand inflation was also pushed up this year by the impact of two deadly cyclones, which cut some supply chains and also factored into higher labor costs and construction spending.

The impact of the cyclone, coupled with high inflation and interest rates, also saw the New Zealand economy enter a technical recession in the first quarter of 2023.

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