Official cash rate stays the same for first time in nearly two years

The official cash rate (OCR) remains unchanged at 5.5 percent, the first time the Reserve Bank hasn't moved on rates for nearly two years.

In a statement on Wednesday, the central bank's monetary policy committee said the decision to keep the rate the same was based on the current level constraining spending and inflationary pressures.

On the downside, the OCR would need to remain restrictive "for the foreseeable future", the statement said.

The global economy remained week and inflationary pressures were easing around the world, the committee said.

On the positive side for New Zealand, domestic inflation was expected to keep declining from its current rate of 6.7 percent, the committee added.

"Core inflation is expected to decline as capacity constraints ease. While employment is above its maximum sustainable level, there are signs of labour market pressures dissipating and vacancies declining. 

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

"The repair and rebuild underway in regions of the North Island due to severe weather events will support economic activity in the near term. Broader Government spending is anticipated to decline in inflation-adjusted terms and in proportion to GDP." 

Wednesday's announcement was in line with consensus forecasts from local economists the Reserve Bank would halt its aggressive tightening cycle.

After the bank lifted the OCR by 25 basis points to 5.5 percent in May, it indicated that would be the peak.

"The committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1 to 3 percent per annum, while supporting maximum sustainable employment."