The Reserve Bank of New Zealand held its official cash rate at 2.75% in a narrow 4-3 vote Wednesday, while saying tighter monetary policy is likely to be needed if the economic outlook warrants it.
Three members of the seven-member Monetary Policy Committee wanted an immediate quarter-percentage-point increase to 3%, according to the bank’s policy announcement and meeting record. The four who backed a pause said two recent rate increases gave the committee time to assess their effects as domestic spending remained weak.
The decision was released at 2 p.m. Wednesday in New Zealand, or 9 p.m. Tuesday in New York. It leaves the bank’s benchmark rate unchanged but does not rule out another increase.
Annual consumer-price inflation eased to 3.7% in the September quarter from 4.1% in June, below what the bank had expected. It remained above the committee’s 1% to 3% target range. Core inflation measures have risen to around the top of that range, and price increases have become more widespread, the bank said.
The committee expects annual inflation to reach 4.4% in the December quarter, largely reflecting current fuel futures prices. It cautioned that the forecast is uncertain because oil and refined-fuel prices remain volatile. The New Zealand dollar’s trade-weighted index has also fallen about 3% since the September policy statement, adding a potential source of imported price pressure.
The split was over the timing of the response, rather than the overall inflation outlook. Members who preferred a rise argued that persistent underlying inflation risked becoming entrenched and that acting now could reduce the need for larger increases later.
Those who supported holding the rate pointed to weaker-than-expected inflation, stable medium-term inflation expectations and subdued wage growth. They also cited risks to the recovery, especially household consumption and investment.
The bank described an uneven economy: exporters and tourism businesses are benefiting from stronger demand and high commodity prices, while households and businesses dependent on domestic spending face more difficult conditions. It also warned that geopolitical tensions, high energy prices and financial stresses could weaken global growth.
Future decisions remain conditional. The meeting record said persistent or broader domestic price pressures could require more tightening, while a sharp global downturn could change the desired policy stance, including leading to easing. The next scheduled rate decision is December 9.
JBizNews Desk | Wellington
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