Summary
The Reserve Bank has opted to maintain the official cash rate at 2.75%, surprising many economists who anticipated a hike due to inflation levels at 3.7%, which exceeds the bank's target range of 1-3%. Reserve Bank Governor Anna Breiman explains that the decision reflects a split within the Monetary Policy Committee, with some members advocating for an increase while others preferred to hold steady, citing weak household consumption and the need for a gradual approach to monetary policy.
Breiman highlights that while the exporting sector shows strong growth, many small businesses are struggling due to low demand from households. The committee agrees that further interest rate hikes are likely, but the timing remains uncertain. Breiman emphasizes the importance of not causing unnecessary volatility in economic activity while working to bring inflation back to target.
The discussion also touches on the influence of the upcoming election cycle, which Breiman asserts does not affect the bank's decision-making process. She maintains that the Reserve Bank's mandate is focused on achieving low and stable inflation, independent of political factors. Additionally, while there are concerns about the impact of artificial intelligence on the job market, particularly for young people, Breiman notes that there is currently no evidence of such effects in New Zealand.
Show Notes
The Reserve Bank has surprised the market today with a decision to hold the official cash rate at 2.75 percent in a split decision. Economists had widely expected a hike today, with inflation at 3.7 percent outside the Reserve Bank's target band of one to three percent. However more interest rate hikes are likely in the next few months. Reserve Bank Governor Anna Breman spoke to Lisa Owen.
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