The Reserve Bank of New Zealand aggressive hiking cycle continues. It raised its Official Cash Rate by another 50 bps to 3.50%, as expected. The RBNZ says its committee debated a +75 or +50bp hike. The RBNZ was the first central bank in a developed money market to raise its cash rate above the neutral level. The bank’s committee members agreed monetary conditions needed to continue to tighten until inflation back in target range. Yesterday the Reserve Bank of Australia raised interest rates 25bp rate to 2.60%. A 50bp rate hike was the consensus, though not unanimous.
The Reserve Bank of New Zealand raised the cash rate to 3.5% from 3.0%.
New Zealand’s central bank delivered its seventh 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 Highlights
- Committee members agreed monetary conditions needed to continue to tighten until inflation is back in target range
- Core consumer price inflation is too high and labour resources are scarce.
- The level of domestic spending has remained resilient to date,
- Household balance sheets remain resilient despite the fall in house prices.
- New Zealand’s productive capacity still being constrained by labour shortages and wage pressures are heightened
On New Zealand Dollar
Higher global interest rates and increased risk aversion in global markets have placed downward pressure on the New Zealand dollar. Members believed that this would contribute toward a rebalancing of New Zealand’s current account over the long-term. However, a lower New Zealand dollar, if sustained, poses further upside risk to inflation over the forecast horizon.
Summary Record of Meeting – October 2022
RBNZ Statement
The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment. Core consumer price inflation is too high and labour resources are scarce.
Global consumer price pressures remain heightened. The global demand for goods and services is exceeding supply capacity, putting upward pressure on prices. Food and energy prices are being particularly exacerbated by the war in Ukraine.
A recent decline in oil prices and an easing in some supply-chain constraints have seen headline inflation measures fall in some countries. However, core measures of inflation have risen and persist. Central banks are tightening monetary conditions, implying a weaker growth outlook for New Zealand’s trading partners.
In New Zealand, the level of domestic spending has remained resilient to date, in the face of slowing global growth and higher domestic interest rates. Employment levels are high, and household balance sheets remain resilient despite the fall in house prices.
New Zealand’s productive capacity is still being constrained by labour shortages and wage pressures are heightened. Overall, spending continues to outstrip the capacity to supply goods and services, with a range of indicators continuing to highlight broad-based pricing pressures.
Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit.
Release date 05 October 2022
Source: RBNZ
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