RBNZ announces February official cash rate

Decision comes as relief for borrowers

RBNZ announces February official cash rate

The Reserve Bank of New Zealand (RBNZ) has left the official cash rate (OCR) unchanged at 5.5% in a move widely expected by the market.

Delivering the first Monetary Policy Statement and OCR for the year on Wednesday, the RBNZ left the wholesale cash rate unchanged for the fifth time in a row as widely forecast, but with a warning about lingering inflation.

New Zealand’s annual Consumer Price Index (CPI) increased by 4.7% for the December quarter, the lowest annual rise in over two years. However, the figure was still above the RBNZ's target of 1.0% -3.0%.

RBNZ governor Adrian Orr (pictured above left) said over the past year or so, the New Zealand economy has evolved broadly as anticipated by RBNZ.  

“Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced. However, headline inflation remains above the 1%-3% target band, limiting the Committee’s ability to tolerate upside inflation surprises,” Orr said.

“The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1% to 3% target. The OCR needs to remain at a restrictive level for a sustained period of time to ensure this occurs.”

What does the cash rate pause mean for New Zealand borrowers and advisers?

Award-winning mortgage adviser Cameron Muggeridge (pictured above right) from Loan Market Central said he was not surprised at all by the decision and was “glad there was no increase as speculated by some”.

“I think more certainty and no change following the media spin of a potential increase will provide more confidence in the housing market for borrowers which may see slightly more competition for vendors.”

While most pundits were predicting a pause, others like ANZ New Zealand chief economist Sharon Zollner had signalled the possibility of a rate hike in February and April.

The top economist said a series of “small but unwelcome surprises” – namely strong consumption growth, higher inflation and a resilient labour market – could restart the rate rising cycle.

“None of them are game changers, but given the starting point was the RBNZ already very nearly over the line to hike again, no game changers are needed,” Zollner said. 

Given these comments over the past few days, Muggeridge said there could be a slight change in sentiment as people become more hesitant.

However, he does think there will be generally more borrowing confidence after this decision, and there may be an uplift in consumer spending.

“Some of my clients in the retail space have been feeling the difference in spending over the last couple of months, so no change won't see an uplift in spending with consistency in OCR, but offer probably a bit of relief for them, rather than potentially facing significant further reductions in consumer spending.”

Will RBNZ lower the cash rate or is there one more hike ahead?

While the Reserve Bank of New Zealand has kept the cash rate on hold for now, the question of when (or if) a cut is coming this year remains a hot topic. Opinions vary, with some expecting a late-year reprieve while others hope for an earlier move.

Muggeridge said it was “really hard to say” but the common theme currently is that a cut could come in the late stages of the year.

“The increase in unemployment, increase in jobseeker and low GDP growth could see a decrease occur sooner to stimulate growth - but inflation is quite sticky at the moment, so I guess we’ll see.”

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