No relief for homeowners as OCR to remain at 'restrictive level'

The official cash rate (OCR) will remain at 5.5%, the Reserve Bank of New Zealand has announced.

The RBNZ's decision was announced this afternoon following the Monetary Policy Committee's first review of the year.

"Over the past year or so, the New Zealand economy has evolved broadly as anticipated by the Committee. 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 to 3 percent target band, limiting the Committee’s ability to tolerate upside inflation surprises," the committee said in its policy statement.

It said while capacity constraints in the country's labour market have eased amid high immigration and weaker demand growth, "recent high population growth is supporting aggregate spending, as evident in upward pressure on dwelling rents, for example".

Slowing global economic growth, which is expected to dip further in 2024, and the "heightened geopolitical and climate conditions" which is a risk for inflation has been factored into the decision, the committee 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 percent target. The OCR needs to remain at a restrictive level for a sustained period of time to ensure this occurs."

In a press conference following the announcement, Reserve Bank governor Adrian Orr told reporters the committee "certainly didn't discuss a cut".

"On the table was a hold or 'do we need to do more?'. It was a very strong consensus that the Official Cash Rate is doing sufficient and that the economy has been evolving as anticipated."

The move is the fifth time the central bank has decided to hold the OCR steady.

Some major banks had trimmed their rates ahead of the update, while it's been tipped the OCR may fall at some point.