The Reserve Bank has unveiled its next move in the fight against inflation.

Lacklustre growth at home and abroad and stubbornly high inflation were cited as the main reasons for keeping the official cash rate (OCR) at 5.5 per cent.

The announcement will surprise few people - but the central bank also suggested tight monetary policy could get New Zealand back into its desired inflation zone of 1 to 3 per cent this year.

Governor of the Reserve Bank of New Zealand, Adrian Orr, in the room where the central bank's monetary policy committee decides how to control inflation. Photo / Mark Mitchell

“The New Zealand economy continues to evolve as anticipated by the monetary policy committee,” the RBNZ said in its monetary policy review this afternoon.

Current consumer price inflation was still above the committee’s target range.

“A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation,” the central bank committee added.

Economic growth in New Zealand was still feeble, the bank said.

“While some near-term price pressures remain, the committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 per cent target range this calendar year.”

The RBNZ also addressed worldwide economic conditions.

It’s a ‘meh’ global economy, RBNZ says

“Globally, while there are differences across regions, economic growth remains below trend and is expected to remain subdued.”

It added: “Most major central banks are cautious about easing monetary policy given the ongoing risk of persistent inflation.”

The review is less comprehensive than the RBNZ monetary policy statement and is a brief summary of the country’s monetary conditions.

Today’s cash rate announcement comes two weeks ahead of the next major piece of inflation data, the consumers price index.

Market reaction was minimal, with the NZ dollar firming a touch to US60.65c from US60.56 before the release.

Wholesale interest rates were mostly unchanged on the back of the announcement, which was seen as similar to the previous RBNZ statement issued in February.

The market was still pricing in an OCR cut by August.

“Most inflation measures are generally trending lower, but they remain ‘too high’, and the pace of decline in price pressures is quite slow too,” CoreLogic NZ chief property economist Kelvin Davidson said this afternoon.

He said both transactions activity and property values were likely to keep rising, but at slow rates.

Earlier today

With a battle against persistent inflation and dismal recent gross domestic product results, most economists had expected the Reserve Bank to keep the cash rate at 5.5 per cent.

“The RBNZ will have a very high threshold for lifting the OCR any further,” ASB economists said this morning.

“But it is also some time away from cutting the OCR or giving off smoke signals to that effect.”

The ASB economists said short-term inflation in this year’s first quarter would probably be on the high side of RBNZ expectations.

ASB said the country’s economy probably also kept under-performing in the first quarter.

New Zealand registered two successive quarters of economic decline in late 2023, entering the most widely-agreed definition of a technical recession.

Most economists believed the next OCR move would be a cut, probably in November.

Sydney-based economists with investment bank UBS said the Reserve Bank faced a “complex policy trade-off: balancing sticky domestic inflation against clear signs of broadening financial stress”.

Among those signs of stress, retail sales fell 1.9 per cent in the December quarter.

In another sign, small and medium-sized business productivity fell last year, according to a new Xero report.

And according to the Companies Office, 282 companies went into liquidation, receivership or voluntary administration last month, the highest number in nine years.

But in a more positive light, small and medium-sized business operators were more confident about the economy, according to research from accounting firm MYOB released this month.

This article was originally published on the NZ Herald here.