The OCR remains at 5.5%.
The RBNZ reduced their OCR forward profile, implying around a 40% chance of a further OCR increase.
The RBNZ’s inflation forecasts were revised lower over 2024, reflecting recent data.
But the RBNZ’s 2025 forecasts were slightly revised up, reflecting persistent domestic inflation pressures.
The RBNZ reaffirmed their commitment to seeing inflation at 2% in the second half of 2025.
The RBNZ’s monetary policy strategy remains unchanged, implying the OCR will remain at 5.5% until 2025 – in line with Westpac’s forecasts. The RBNZ is staying the course.

Staying the course.

The RBNZ left the OCR unchanged as we expected at 5.5%. The overall tone of the Statement remains somewhat hawkish – but much less hawkish than market fears. Even though the OCR was left unchanged this time, the RBNZ still sees a risk of a need for a higher OCR to 5.75% in Q3 this year. The RBNZ’s updated OCR track was lowered, implying around a 40% chance of a further OCR increase (down from around 75% previously).

A key excerpt summarises the RBNZ’s view:

“Conditional on our central economic outlook, the Official Cash Rate (OCR) is expected to remain around current levels for an extended period in order for the MPC to meet its inflation target. The outlook for the OCR is slightly lower than in the November 2023 Statement. This reflects that the slightly lower outlooks for capacity pressures, import prices and house price inflation more than offset the higher outlook for export prices.”

For now, the RBNZ seems comfortable that their monetary policy strategy of holding the OCR at 5.5% for as long as it takes will be sufficient to bring inflation back to 2%. Still sticky non-tradables inflation and a slowly adjusting labour market is keeping the RBNZ on their toes. Hence the RBNZ continues to see some risk of a further OCR increase in the next few months.

The MPC continues to maintain a consensus regarding the level of the OCR. No vote was required.

As noted in our MPS review and subsequent note, we didn’t expect an increase in the OCR, with a straight interpretation of the data suggesting that the track could even be lowered. But we saw material risks of either an OCR increase or upgraded risks of one in the future, if the RBNZ were to focus on some particular more worrying aspects of the data (e.g., the stickiness of non-tradable inflation). These risks were not realised. We remain comfortable with our view that the OCR remains on hold at 5.5% over 2024.

Kelly Eckhold

Chief Economist

021 786 758

Kelly Eckhold

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