The Reserve Bank has held interest rates for the second time in as many months, but is not ruling out another hike in the future.
After concluding its August meeting on Wednesday, the central bank said it was keeping the official cash rate (OCR) at 5.5 percent - having lifted it by 525 basis points since the end of 2021 in a bid to tame skyrocketing inflation.
Most economists had expected the pause in the tightening cycle to continue.
In Wednesday's monetary policy statement (MPS), Reserve Bank Governor Adrian Orr said higher interest rates were constraining spending and inflationary pressures.
"The committee agreed that interest rates still need to remain at a restrictive level for the foreseeable future, to ensure annual consumer price inflation returns to the 1 to 3 percent target range while supporting maximum sustainable employment."
Orr pointed to the lagged effect of previous OCR hikes, with the average mortgage rate loan expected to rise to 6 percent by the start of next year.
However, the MPS did not rule further tightening of monetary policy. The RBNZ noted "expectations for the level of the OCR next year have increased, with fewer cuts priced through 2024 than prior to the May Statement".
The MPS noted non-tradables inflation came in "somewhat higher in the June 2023 quarter than expected" in May.
While economic data since the May MPS had been mixed, the RBNZ on Wednesday said "labour market pressures... have been easing over recent quarters. Consequently, non-tradables inflation is expected to decline slowly as capacity and labour market pressures continue to ease over the medium term".
"Today's decision from the RBNZ to leave the OCR unchanged at 5.5 percent will have surprised very few people. Inflation and inflation expectations have continued to show encouraging signs of a slowdown and there have also been a few hints of a looser labour market too, partly thanks to high net migration," said Kelvin Davidson, CoreLogic's chief property economist.
Hike later this year?
Even before Wednesday's MPS, many economists thought there was a decent chance of another hike before the year's end.
"It's very valid for the Reserve Bank to say, 'OK, we think we've done enough - we'll wait and see what happens.' But our take on it is they will eventually conclude they will need to do more," ANZ chief economist Sharon Zollner said last week.
But the RBNZ was forecasting inflation - running at 6 percent in the second quarter - to return to its target range of between 2 and 3 percent by the end of next year.
"Annual headline CPI (consumer price index) inflation is assumed to have peaked," the MPS said.
"It is assumed to remain at 6 percent in the September 2023 quarter, due primarily to higher fuel prices and local body rates, before declining further.
"Annual headline CPI inflation is projected to return to within the 1 to 3 percent target band in the second half of 2024, reaching the 2 percent target midpoint in 2025."
