Kia ora, I'm Paul Conway - Chief Economist here at Te Pūtea Matua – the Reserve Bank of New Zealand.
On Wednesday August 16, the Monetary Policy Committee agreed to maintain the Official Cash Rate at 5.5%. The current level of interest rates is holding back spending and starting to lower inflation pressure in our economy, as expected and required.
Activity has continued to slow in parts of the economy that are more sensitive to interest rates. Labour shortages are easing as overall demand softens and immigration adds to the available pool of workers. Globally, economic growth is below trend in many of our trading partners. Weaker growth in the global economy has seen New Zealand export prices drop, especially for dairy and meat.
As demand slows in New Zealand, the gap between supply and demand in our economy narrows. In turn, this helps to take the heat out of inflation. But while inflation and inflation expectations have started to fall, they are still far too high. Accordingly, the Official Cash Rate will need to stay at restrictive levels for the foreseeable future to get inflation back in its box.
The Monetary Policy Committee remains confident that by slowing the economy with the OCR at restrictive levels, consumer price inflation will return to the target range of 1 to 3% while supporting maximum sustainable employment.
Thank you.