In the previous meeting, the RBNZ signalled that it had reached the end of its hiking cycle. It added more ‘staying’ weight to that picture by saying that interest rates will need to remain restrictive for the foreseeable future. A hold, for now, is RBNZ’s latest stance.

Domestic progress

In New Zealand, the RBNZ noted that domestic consumer spending was easing, house prices were at a more sustainable level, and businesses are reporting slowing demand for both goods and services. On top of this, broader Government spending is expected to decline in inflation-adjusted terms and in proportion to GDP. However, the Committee noted that employment was above its maximum sustainable level, but recent indicators did suggest the labour market is easing.

So, the RBNZ is happy with the progress made but wants to still see restrictive rates for the foreseeable future. Inflation levels are showing a slow decline in New Zealand and this is giving the RBNZ reasonable confidence that its restrictive policy is working.

What does this mean for the NZD?

This was pretty much expected, so the NZD had a little reaction to the announcement, but the RBNZ did signal a longer hold on rates than markets were expecting. This should mean the NZD is supported for the time being, and traders will be carefully looking at incoming labour and inflation data to see how these pressures are changing. You can see that expectations have now risen for higher rates for longer in short-term interest rate markets. See Financial Source’s handy interest rate probability tracker. It still has rates at 5.40% by October 2024. See the RBNZ’s statement here.