The Reserve Bank of New Zealand decided unanimously on Wednesday to keep the rates unchanged at 5.5%, since they are "constraining spending and inflation pressure as anticipated and required" . The move was by no measure a surprise, since May's projections had revealed that policymakers expected this level to be the peak. 
This still marks a turning point for a central bank that has been at the forefront of monetary tightening, with a very hawkish stance. It became the first major central bank to raise rates back in October 2021, having delivered 525 basis points worth of hikes in twelve consecutive meetings.
Inflation eased to 6.7% y/y in the first quarter and the lowest level in more than a year, with the bank expecting further decline. The country is in a technical recession, having contracted in Q4 and Q1 sequentially, while policymakers forecast two more negative quarters ahead. They also noted signs of "dissipating" pressures on the labor market.
These factors led the RBNZ to today's hold, but inflation is still high and not projected to fall back to the 1-3% target before the second half of 2024. Employment meanwhile, is "above its maximum sustainable level", as per the bank's own admission. More to it, wages are also high, as the Labor Cost Index (LCI) hit 4.3% y/y in Q1, in the biggest increase since the data started in 1992.
Given the above, it may not be particularly easy for RBNZ to stay on the sidelines, as has been the case with some of its major counterparts. Some of them include the US Fed which paused in June, but has signaled further tightening ahead and the Bank of Canada which restarted its hiking cycle after the April hold.
The central bank did not offer explicit guidance, only reiterating that the cash rate will need to stay at a "restrictive level for the foreseeable future", but there was adovish tone in today's decision. NZD/USD had a mixed reaction to today's hold, trading in profitable territory at the time of writing.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 12 Jul 2023 https://www.rbnz.govt.nz/hub/news/2023/07/official-cash-rate-remains-on-hold