RBNZ decided to hold Official Cash Rate unchanged at 5.50%. The central bank expressed its confidence that the current OCR level is effectively restraining demand. However, it underscored the need for a “sustained decline in capacity pressures” to ensure that inflation re-aligns with 1 to 3% target range. This necessitates maintaining OCR “at a restrictive level for a sustained period of time”.
The updated economic forecasts in the MPS projects that CPI inflation will return to the target band by Q3 this year, then falls further to 2% midpoint by Q4 2025. These projections indicate a “slightly lower” inflation rate over the forecast period compared to previous estimates made in November.
Regarding future movements, the central bank anticipates OCR path to echo the trajectory outlined in the November MPS. It suggests OCR could peak at 5.6% in Q2 this year, leaving room for a marginal possibility of another rate hike.
Absent further increases, interest rate reductions are expected to commence in the Q2 2025, with OCR gradually decreasing to 3.2% by Q1 of 2027.
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