All eyes on cash rate track as NZ reserve bank meets

New Zealand's central bank is expected to hold the official cash rate steady at 5.5 per cent at its last meeting of the year.

The Reserve Bank of New Zealand (RBNZ) meets on Wednesday to update the OCR, and more intriguingly, its tracking into 2024.

The RBNZ has held firm at 5.5 per cent for the past four meetings and the market consensus is Governor Adrian Orr will make that a fifth this week.

The benchmark interest rate is well above Australia's OCR, at 4.35 per cent, and until recent months, many Kiwi economists had tipped it to go higher at either this meeting or the new year.

Those expectations have since cooled, with ANZ the latest bank to signal its belief that 5.5 per cent would be the peak of the cycle.

“Our central forecast no longer includes a resumption of hiking, though we still see this as a significant risk,” ANZ chief economist Sharon Zollner said.

Headline inflation in NZ is 5.6 per cent, as measured by the consumers price index (CPI) for the year to September 2023, down from a peak of 7.3 per cent measured 15 months earlier.

“We are winning the war on inflation. But the war is far from over,” Kiwibank chief economist Jarrod Kerr said.

“We remain of the view that the RBNZ has done more than enough to cool the economy, and drive inflation back down to the 2.0 per cent target midpoint.

“The RBNZ can sit tight, watch the data unfold, and simply trust the process. Monetary policy is working.”

Since the last RBNZ meeting, the country enjoyed a much higher than anticipated growth figure for the June 2023 quarter of 0.9 per cent.

A previously-reported recession at the start of the year was revised out of existence with updated figures.

Earlier this month, Kiwi unemployment rose from 3.6 to 3.9 per cent, showing a softer labour market, with retail sales down three per cent on this time last year showing the high OCR at work.

Unsurprisingly, mortgage owners are eager for relief from high interest rates, with current RBNZ tracking showing rate cuts unlikely until the end of 2024.

All eyes will be on those future tracks, which are only updated every three months, when the RBNZ publishes its decisions at 2pm NZDT on Wednesday.