UOB Group’s Economist Lee Sue Ann reviews the latest interest rate decision by the RBNZ.

Key Takeaways

“The Reserve Bank of New Zealand (RBNZ) decided to raise its official cash rate (OCR) by 25bps to 5.50%. Updated forecasts by the RBNZ show the OCR peaking at 5.5%. The central bank now expects inflation to return to its target band in 3Q24. Its forecasts show the economy will not slow as much as it previously expected, with a very mild recession projected for the second and third quarters of this year.”

“The RBNZ noted that the surge in immigration is expected to bolster growth and add to inflation pressure, but said it expects the pace of the migrant inflow to ease over coming quarters. It also downplayed concerns about fiscal policy boosting demand.”

“Overall, we expect the RBNZ to retain a tightening bias, keeping the door open for a further rate hike if needed. At this juncture, we are keeping our OCR forecast at 5.50% for the rest of this year, while bearing in mind that the next monetary policy meeting will be on 12 Jul, and a lot can still change from now till then.”