The most important points of the monetary policy statement issued by the New Zealand Reserve were as follows :
- The committee agreed that monetary policy should remain restrained. The extent of this restriction will decrease over time in line with the expected decrease in inflationary pressures.
- Restrictive monetary policy has led to a significant reduction in consumer price inflation, as the committee expects core inflation to return to the target range of 1 to 3% in the second half of this year.
- The decline in inflation reflects the easing of domestic price pressures, as well as lower inflation for goods and services imported to New Zealand.
- Labor market pressures have eased, reflecting cautious hiring decisions made by companies and an increased labor supply.
- The level of economic activity, including business and consumer investment spending and investment intentions, corresponds to the restrictive monetary position.
- Current and projected government spending will constrain overall spending in the economy. However, the positive impact of the pending tax cuts on private spending is less certain.
- Some domestic price pressures are still strong, but there are signs that continued inflation will ease in line with lower production capacity pressures and business pricing intentions.
After the meeting, the markets priced in a cut in the New Zealand interest rate by 25 basis points for October against 16 points before the RBNZ statement.
The markets are expecting almost two interest rate cuts during the three remaining meetings by the RBNZ for this year now, and the first full rate cut is scheduled for October, with the probability of a move in August also rising to almost 60% currently.
