Reserve Bank of New Zealand Raise Rates by 25bp to 5.50%, Kiwi Sells Off on Peak Rate

The Reserve Bank of New Zealand aggressive hiking cycle continues. It raised its Official Cash Rate by another 25 bps to 5.50%, as expected. Consensus almost unanimously expected another 25bps hike. The bank’s committee members agreed the level of interest rates are constraining spending and inflation pressure. The RBNZ saw the terminal official cash rate aga8in at 5.5% in June 2024. The forex market took the Bank’s signal of the peak rate and swifty sold off the New Zealand Dollar from .6255 to .6170 against the US dollar. The RBNZ was the first central bank in a developed money market to raise its cash rate above the neutral level.


The Reserve Bank of New Zealand raised the cash rate to 5.50% from 5.25%.

New Zealand’s central bank delivered its twelfth straight interest rate hike on Wednesday. The rises in the official cash rate which began last year were the first since 2014 when the OCR hit a post-GFC peak of 3.5 per cent.

Statement & Minutes Highlights

  • The Official Cash Rate set to remain restrictive.
  • The Committee agreed the level of interest rates are constraining spending and inflation pressure.
  • 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% annual target range, while supporting maximum sustainable employment.
  • Global economic growth remains weak and inflation pressures are easing. This follows a period of significant monetary policy tightening by central banks internationally.
  • International supply chain constraints have also eased following a period of disruption, and shipping costs have declined.
  • The 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 and with it measures of inflation expectations. 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.
  • 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. Businesses report that a lack of demand, rather than labour shortages, is now the main constraint on activity.
  • There has been a return of net inward migration since international borders reopened. The Committee expects the pace of immigration to ease back toward pre-COVID-19 trend levels over coming quarters. While immigration has assisted to ease labour shortages, its net impact on overall spending is uncertain.
  • The recent recovery in tourism spending, to around three-quarters of its pre-COVID-19 trend level, is also supporting demand.
  • The repair and rebuild facing significant regions of the North Island – due to the recent severe weather events – will support economic activity, in particular the horizontal construction sector. The timing of this predominantly government investment will be spread over several years. Broader government spending is anticipated to decline in inflation-adjusted
Reserve Bank of New Zealand Interest Rate

RBNZ forecasts:

  • Sees cash rate peak at 5.5%
  • Sees march qtr gdp at +0.3%
  • Forecasts negative GDP growth for q2, q3 in 2023
  • sees NZD TWI at around 71.5% in June 2024 (pvs 71.5%)
  • sees annual CPI 3.7% by June 2024 (pvs 3.6%)

Terminal Rate

  • Sees official cash rate at 5.5% in September 2023 (pvs 5.43%)
  • at 5.5% in June 2024 (pvs 5.5%)
  • at 5.43% in September 2024 (pvs 5.44%)
  • at 3.31% in June 2026

Wednesday’s move was the 12th straight rise, bringing a total of 475bps hikes since October 2021, the most aggressive tightening since 1999. 

Release date 23 May 2023

Source: RBNZ

From a Sunburnt Country…

From The TradersCommunity Australian News Desk