'Great relief': Reserve Bank NZ says they are confident inflation has stabilised

The Reserve Bank New Zealand’s (RBNZ) Governor says they're confident that NZ is back in a low and stable inflation environment.

Governor Adrian Orr's comments follow after the RBNZ dropped the official cash rate, for the first time in four years, with further cuts expected in future.

Speaking to William Terite on Pacific Mornings, Orr said the series of global events like covid and Russia invading Ukraine has had a major impact on inflation and therefore on New Zealanders.

"High and variable inflation is bad for economic activity - investment, wealth creation, eating, consuming, and living," Orr said.

"We have been restoring that inflation so that people can move on with their lives.

"It's the inflation that is evil and it needs to be forever removed."

Watch the full interview via 531pi’s FB below:

That's where the reduction of the OCR comes in, which Orr said was a carefully considered move despite some skeptisim over their decision.

Infometrics chief executive Brad Olsen told RNZ that although the RBNZ may have made the right move, the "huge revision" to the OCR track highlights their incorrect predictions in May.

Olsen said it's probably the Reserve Bank's "biggest flip-flop" ever, and that the RBNZ is unaware of the cause behind economic changes in the last three months.

He added that it's hard to trust the RBNZ considering they fought against what commentators and economists suggested in May.

Orr rejected that the RBNZ has "flip-flopped" saying that they haven't changed direction since May but that the economic environment has changed.

He said many seemingly forgot about their July monetary statement which said the risks had moved in favour of easing interest rates.

Orr also highlighted this contextual malleability through their July statement which said "monetary policy can be tempered in line with the expected decline in inflation".

"The weight of money seemed to adhere to it because the Ford curve in the financial markets has been predicting this decline for some time. In August, we eased interest rates."

He rejects the notion that the RBNZ is harder to trust, saying they are "the most transparent central bank in the OECD".

"We always note the risks we're trying to balance, if you read the document, and importantly the conditionality of the projections we provide.

"It's all there. Come straight to the bank you don't need to filter all your news through third parties, come and read it directly.

"Plus for us, inflation expectations are well anchored on exactly the midpoint of our target range, that's what matters to us."

Orr said he would lose sleep over the huge impact their decisions have if they weren't making the right ones.

"In that case, I've been sleeping well. We knew we had to take the inflation pressure out. We only had the interest rate instrument so we have acted accordingly.

"We are now in a confident position that we are back in a low and stable inflation environment so that is of great relief.

"But we're cognizant - it means less spending per person, less investment, and employment is down.

"With inflation gone, real activity can now flourish."