OCR held at 5.5% in final Reserve Bank review before election

The official cash rate (OCR) has been held steady in the Reserve Bank's final review before the election.

RBNZ has announced the OCR will remain at 5.5%. The move is the third time the central bank has decided to hold the OCR steady after it halted 18 months of rate hikes in July.

In making the decision, the bank reiterated that cuts to the OCR were a long way off.

"Interest rates are constraining economic activity and reducing inflationary pressure as required. Demand growth in the economy continues to ease. While GDP growth in the June quarter was stronger than anticipated, the growth outlook remains subdued.

"With monetary conditions remaining restrictive, spending growth is expected to decline further," the Monetary Policy Committee said. However, they said there was a near-term risk "that activity and inflation do not slow as much as needed".

"The committee agreed that the OCR needs to stay at a restrictive level to ensure that annual consumer price inflation returns to the 1 to 3% target range and to support maximum sustainable employment."

Economists had largely predicted the move ahead of the release, though another rate tightening had not been absolutely out of the question.

Westpac chief economist Kelly Eckhold said last week: "A surprise tightening to 5.75% is a risk, but we think no more than a 10-20% chance."

Many Kiwi homeowners are continuing to face higher mortgage rates alongside increased prices for food and other living expenses.

Last week, ASB economists delayed their forecast OCR cuts next year and said "the path of least regret" for the Reserve Bank was to wait out further.

"The path of least regret for the RBNZ is still to keep tight monetary conditions for too long rather than ease policy prematurely," they wrote.

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"We have delayed our anticipated start date for OCR cuts from August 2024 to February 2025, with the OCR expected to settle at circa 3% neutral levels by mid-2026.

"There is still the risk that the OCR could move higher from here if inflation does not look like it will be coming down fast enough for the RBNZ's comfort."