As expected the Reserve Bank has held the official cash rate at 5.5%.
It's the fourth consecutive time the central bank has held firm at that position amid signs inflation is slowing.
Inflation is 5.6%, as measured by the consumers price index (CPI) for the year to September 2023, down from a peak of 7.3% measured 15 months earlier.
In a media release this afternoon, the Reserve Bank said its Monetary Policy Committee is "confident that the current level of the OCR is restricting demand".
"However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation. If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further," it said.
"The Monetary Policy Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment."
The Reserve Bank said while demand growth had eased, it was "by less than anticipated over the first half of 2023 in part due to strong population growth".
"The OCR will need to stay restrictive, so demand growth remains subdued, and inflation returns to the 1 to 3 per cent target range."
It continued: "Wage growth has eased from recent peaks. Demand for labour is softening, with job advertisements now below pre-Covid-19 levels. At the same time, strong inward migration is increasing the population and adding to labour supply.
"While population growth has eased supply constraints, the effects on aggregate demand are becoming apparent. This is increasing the risk of inflation remaining above target."
Kiwibank chief economist Jarrod Kerr said before today's announcement, "We are winning the war on inflation. But the war is far from over".
"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% target midpoint. The RBNZ can sit tight, watch the data unfold, and simply trust the process. Monetary policy is working."
Consumer spending has slowed on the back of high interest rates, while the labour market is softening amid high migration.
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