Heading into the RBNZ meeting, markets were not expecting a change in interest rates. The RBNZ kept rates unchanged at 5.5% as expected and noted little changes from the previous meeting. However, the emphasis that the RBNZ did make was the near-term risk that inflation measures don’t slow down as much as expected. The committee once again agrees that the official cash rate needed to stay restrictive for the foreseeable future in a repeat of the line from the previous statement.

Higher interest rates for longer

The RBNZ did note that it expects inflationary pressures to be marginally higher over coming years and, as a result, interest rates may need to remain near their current levels for slightly longer to slow demand. This ‘higher for longer’ narrative to deal with ‘stickier inflation’ is a narrative that may prove to be more popular amongst central banks as inflation still remains high around the world.

The RBNZ noted that annual consumer price inflation eased from 6.7 to 6.0 percent in the June 2023 quarter. However, the RBNZ noted that it would take some time for inflation to return to the mid-point of the MPC’s 1 to 3% target range.

Governor Orr in the press conference

Governor Orr stated that the RBNZ is very happy with where the official cash rate is and that the rise in the nominal neutral cash rate by 25bps is not forward guidance or a strong signal of the RBNZ’s next move. He also said there was not much discussion of a rate cut and that the RBNZ is ready to work through the data noise in the near term.

The reaction in the NZD

The NZD gained against the AUD on the initial reaction, sending the AUDNZD pair lower. This makes sense on a higher for longer narrative and pushed the AUDNZD into major support around 1.0800 which is also the 50% fib level from the May to June swing. There is not a whole lot to glean from the meeting and much is unchanged. Key levels to watch on the AUDNZD pair are below. Read the full RBNZ statement here.