New Zealand c.bank leaves cash rate unchanged but pushes out timeline for cuts

(Adds detail throughout and market reaction)

WELLINGTON, May 22 - New Zealand's central bank held its cash rate steady at 5.5% on Wednesday as expected, but lifted its forecast peak for rates and pushed out when it expects to start cutting rates until the third quarter of 2025, citing persistent inflation.

All 30 economists in a Reuters poll had forecast the Reserve Bank of New Zealand (RBNZ) would leave the cash rate at a 15-year high for the seventh consecutive meeting, but its hawkish statement led to a jump in the New Zealand dollar and bond yields.

"Annual consumer price inflation remains above the Committee's 1 to 3 percent target band, and components of domestic services inflation persist," the statement said.

The RBNZ meeting minutes said the central bank had considered the possibility of increasing the cash rate at the meeting.

The kiwi dollar jumped 0.9% to $0.6147, the strongest level since early March, while two-year swap rates reversed earlier declines to be up 5 basis points to 4.935%.

The RBNZ statement said the committee agreed interest rates would need to remain at a restrictive level to ensure inflation returns to its target within a reasonable timeframe.

The RBNZ raised its forecast cash rate peak to 5.7% from 5.6%. It now expects to begin cutting the cash rate in the third quarter of 2025, later than its prior forecast for the second quarter of 2025.

It said while weaker capacity pressures and an easing labour market were reducing domestic inflation, the decline was tempered by sectors of the economy that are less sensitive to interest rates.

"A slow decline in domestic inflation poses a risk to inflation expectations," it said.

A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ has battled to curb inflation, lifting rates by 525 basis points since October 2021 in the most aggressive tightening since the official cash rate was introduced in 1999.

New Zealand's annual inflation has slowed in recent months and was 4.0% in the January-March period, with expectations that it will return to its target band in the second half of this year.

The rate hikes have sharply slowed the economy, with recent data showing that it was tracking below previous central bank expectations. The country entered a technical recession after gross domestic product fell 0.1% in the fourth quarter. (Reporting by Lucy Craymer; Editing by Tom Hogue and Jamie Freed)