The Monetary Policy Committee of the Reserve Bank of New Zealand (RBNZ) on Wednesday voted to raise the Official Cash Rate (OCR) from 5.25 per cent to 5.5 per cent, in an effort to further control inflation.

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The committee agreed the level of interest rates is constraining spending and inflation pressure, reports Xinhua news agency. The OCR will need to remain at a restrictive level for the foreseeable future, to ensure that consumer price inflation returns to the 1-3 percent annual target range, while supporting maximum sustainable employment, said an RBNZ statement.

International supply chain constraints have also eased following a period of disruption, and shipping costs have declined. The statement said that weaker global growth has led to lower export prices for New Zealand`s goods.

In New Zealand, inflation is expected to continue to decline from its peak. However, core inflation pressures will remain until capacity constraints ease further.

While employment is above its maximum sustainable level, there are now signs of labour shortages easing and vacancies declining, it said.

Consumer spending growth has eased and residential construction activity has declined, while house prices have returned to more sustainable levels, the statement said, adding that more generally, businesses are reporting slower demand for their goods and services, and weak investment intentions.

"Businesses report that a lack of demand, rather than labour shortages, is now the main constraint on activity," RBNZ said. While immigration has assisted in easing labour shortages, its net impact on overall spending is uncertain.

The recent recovery in tourism spending to around three-quarters of its pre-Covid trend level also supports demand, it said.

 

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