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Monetary Policy Statement February 2024

The Monetary Policy Committee today agreed to hold the Official Cash Rate (OCR) at 5.50%.

Reserve Bank of New Zealand

Published date:
Monetary Policy Statement February 2024
Monetary Policy Statement February 2024

The Monetary Policy Committee today agreed to hold the Official Cash Rate (OCR) at 5.50%.

Our monetary policy decision documents

We have a range of resources about the OCR and our recent Monetary Policy decision for different audiences.

→ Media release and record of meeting
A summary of the Monetary Policy Committee's decision from the meeting on 28 February 2024 (15 minutes to read).

Monetary Policy Statement February 2024

PDF | 7MB
Read this document for a detailed description of the economic outlook and the Monetary Policy Committee’s OCR decision. (1 to 2 hours to read).

Monetary policy data

XLSX | 442KB
Download the data for the OCR projection, our forecasts for macro-economic and other variables and for the charts shown in the Monetary Policy Statement.

Monetary policy briefing

PDF | 3MB
Look through this slide deck for a brief overview of the OCR decision and economic outlook. (15 minutes to view).

Monetary policy snapshots

PDF | 239KB
Read this document for a brief and less technical description of the OCR decision and the economic outlook. (10 minutes to read).

Monetary policy snapshots

  • Recent data suggest overall demand in the economy has declined, and was lower than previously expected. There is now better balance between demand and the economy’s ability to supply goods and services.  
  • The outlook for economic growth in the near term remains subdued. High interest rates have reduced demand, as seen in declining business investment and per capita household consumption. Higher interest rates, subdued house price growth and high construction costs have made it less appealing for developers to build houses. The number of building consents has continued to decline, indicating a slowdown in residential building activity.  
  • Globally, economic activity has continued to slow, reducing demand for New Zealand’s goods exports. Recent conflict in the Red Sea and drought near the Panama Canal are creating shipping delays and increasing shipping costs, which will likely feed into higher imported inflation if sustained.  
  • Weak global growth and high interest rates are expected to reduce business investment over 2024. Household consumption is also expected to decline further in per capita terms as high interest rates underpin households’ debt servicing costs and a weaker labour market reduces growth in incomes.  
  • Strong population growth, mainly due to migration, is providing support to economic activity. Net migration has increased rapidly over the last year, with an annual rate of 2.4 percent of the population at the end of 2023. The overall effect of immigration on inflation is uncertain, as immigrants help ease labour shortages but also create more demand in the economy.  
  • The demand effects of strong migration have become apparent in higher rent inflation. Despite strong growth in rents, high interest rates have kept demand in the housing market relatively subdued. House prices have increased only modestly from their trough in early 2023. 
  • High net immigration also means more workers are available, boosting labour supply in the economy. Labour supply has also been supported by high labour force participation of New Zealanders. Businesses report it is much easier to find workers, with more people looking for jobs and less demand for extra workers.  
  • New Zealand’s labour market remains tight, but labour shortages are easing due to both slowing demand for workers and increased labour supply. The unemployment rate increased from 3.9 to 4.0 percent in the December 2023 quarter.  
  • While most measures of labour market pressure have eased significantly, wage inflation remains elevated and is still adding to inflationary pressures. Strong growth in wages was seen across several industry groups, suggesting wage growth is broad-based.  
  • The labour market is expected to moderate further over the remainder of this year as labour demand continues to ease, reflected in fewer job vacancies and increasing unemployment.  
  • Decreasing demand and easing supply constraints here and abroad have reduced inflation in New Zealand. Annual headline inflation eased from 5.6 to 4.7 percent in the December 2023 quarter.  
  • Declines have been led by continued falls in imported inflation, especially for food and transport services. Domestically-generated inflation is falling more slowly.  
  • All measures of core inflation declined in the December 2023 quarter, showing that underlying inflationary pressure is continuing to ease. All measures of business inflation expectations also declined, although they remain elevated. While the declines in core inflation and business inflation expectations are encouraging, they remain high compared to the 2 percent mid-point of the MPC’s target band. 
  • Overall, a combination of lower demand and growing supply is bringing domestic inflation down, with further declines expected over 2024. Interest rates remain contractionary at their current level based on our understanding of the state of the economy. However, high interest rates still need to be maintained for an extended period to meet our inflation objective. 

Kia ora, I'm Paul Conway, Chief Economist here at Te Pūtea Matua - the Reserve Bank of New Zealand. 

This week, the Monetary Policy Committee decided to hold the Official Cash Rate or the OCR at 5.5%. 

Over the past year or so, the New Zealand economy has developed pretty much as we expected. 

So core or underlying inflation pressures have come down, but headline inflation remains above our 1 to 3% target band, so there is limited room for us to tolerate higher inflation surprises in future. 

But capacity pressures have declined as interest rates have been high enough to slow the economy down. 

Overseas, higher interest rates have also contributed to lower global growth, which is expected to slow further during 2024. 

Now this subdued picture will keep import price inflation down. 

Overall, this is all helping to slow demand for goods and services to better match the supply capacity of the New Zealand economy. 

In the labour market, with high immigration and weaker growth, there has been less demand for workers. 

As a result, labour market pressures have eased and wage growth is slowing to be more consistent with underlying productivity growth. 

On the other hand, very high population growth is supporting spending in the economy and that's evident in rising home rents, for example. 

Ongoing wars in the Middle East, Ukraine and elsewhere, along with climate change, could also pose a risk for inflation going forward. 

And a recent rise in global shipping costs is one sign of this risk. 

But we are confident that the current level of the Official Cash Rate is restricting demand as we continue to tap the economic brakes. 

But the OCR will need to stay at a restrictive level for a sustained period of time to ensure that capacity pressures and inflation expectations continue to decline and inflation returns to our 1-3% target band later this year. 

Thank you.