The Reserve Bank (RBNZ) has held interest rates in its final monetary policy decision of the year but is "wary of ongoing inflationary pressures" and is ruling out cuts anytime soon.
As expected by most economists, the central bank will keep the official cash rate (OCR) at 5.5 percent - repeating its previous four decisions after 12 consecutive increases.
Despite saying interest rates were restricting spending and consumer prices were falling, the RBNZ said borrowing costs needed to stay high for some time - and wasn't forecasting rate cuts until the start of 2025.
"The committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation," the RBNZ said.
New Zealand's economy has been under strain from the aggressive hiking of interest rates between October 2021 and May this year, in a bid to tame inflation.
But, in a warning against being complacent, the RBNZ said inflation was still to high and rates needed to remain restrictive "so demand growth remains subdued, and inflation returns to the 1 to 3 percent target range".
"While population growth has eased supply constraints, the effects on aggregate demand are becoming apparent," the central bank said. "This is increasing the risk of inflation remaining above target."
Flat economy
Although New Zealand's inflation had fallen from 7.3 percent, its highest level since the 1990s, it remained at 5.6 percent - more than double the RBNZ's target.
The RBNZ said in its monetary policy statement it expected slow growth in Aotearoa's economy until at least the end of next year. The central bank forecast no growth in the December quarter and an expansion of just 0.1 percent in the three months to March 2024.
Even so, annual inflation would only return to below 3 percent at the end of 2024, the RBNZ's forecasts showed.
The RBNZ said the annual inflation rate was likely to drop to 5 percent in December.
It was still keeping a close eye on population growth, however, amid fears it could keep the pressure on consumer prices.
The RBNZ said the overall impact of high net immigration on inflationary pressure was "uncertain" but appeared to have put rents under the pump.
Before Wednesday's announcement, experts were split on when the OCR might start to fall. Milford Asset Management's Mark Riggall pointed to inflation slowly coming under control and said the next step would "likely be a cut because we've already hiked so much".
Cameron Bagrie at Bagrie Economics predicted rates would stay on hold throughout next year.
The new Government has promised to scrap the RBNZ's requirement to focus on maximum sustainable employment and instead make keeping inflation between 1 and 3 percent the central bank's sole target.
Across the Tasman, the Reserve Bank of Australia decided to hike rates in recent weeks "to be more assured that inflation would return to target in a reasonable timeframe".
