New Zealand central bank says monetary policy working, inflation still too high
NEW Zealand’s central bank chief economist said on Tuesday (Jan 30) that recent economic data suggests monetary policy is working but there is still a way to go before inflation returns to its midpoint of 2 per cent.
“Monetary policy is working, with the economy slowing and inflation falling. But we still have a way to go,” Paul Conway said at a webcast organised by the central bank.
He added that the monetary policy committee will have more to say in the February 2024 monetary policy statement.
Since the Reserve Bank of New Zealand’s (RBNZ) last decision at the end of November, data has shown New Zealand’s economy is weaker than the RBNZ had forecast, and inflation is easing slightly quicker than expected. This has led the market to expect the RBNZ to start cutting the cash rate from the middle of this year.
Economists said Conway’s speech was hawkish, pushing back against market expectations of early cash rate cuts.
The central bank in November almost hiked the cash rate and ruled out rate cuts until 2025 at the earliest.
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“We view today’s comments as being consistent with our forecast that any easing in policy is still some way off,” said Satish Ranchhod, senior economist at Westpac.
The RBNZ was one of the first central banks to withdraw pandemic-era monetary stimulus and has lifted rates by 525 basis points since October 2021 to 5.5 per cent in an effort to curb inflation. Inflation, while below historic highs, is currently tracking at 4.7 per cent, well above the central bank’s target band of 1 to 3 per cent.
The aggressive hiking has weighed on the economy and GDP unexpectedly contracted in the third quarter and early quarters were revised lower.
Conway noted the downside surprises in this data but added that some of the recent revisions lower in GDP are due to methodological changes and do not necessarily mean that capacity pressures in the economy are much lower than previously assumed.
ANZ chief economist Sharon Zollner said in a note that Conway’s comments clarified that the weaker GDP data was not a “slam dunk” for an imminent dovish pivot. REUTERS
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