Reserve Bank of New Zealand Unexpectantly Raise Rates by 50bp to 5.25% to Highest Since December 2008

The Reserve Bank of New Zealand aggressive hiking cycle continues. It raised its Official Cash Rate by another 50 bps to 5.25%, as expected. Consensus almost unanimously expected another 25bps hike. The Reserve Bank of Australia yesterday kept interest rates steady at 3.6%. 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. The RBNZ saw the terminal official cash rate at 5.5% in June 2024.

RBNZ
RBNZ

The Reserve Bank of New Zealand raised the cash rate to 5.25% from 4.75%.

New Zealand’s central bank delivered its eleventh 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 committee discussed 25 and 50 basis point increases at this meeting
  • Committee was comfortable that current lending rates faced by businesses and households will help ensure core inflation and inflation expectations begin to moderate
  • Committee is expecting to see a continued slowing in domestic demand and a moderation in core inflation and inflation expectations
  • The extent of this moderation will determine the direction of future monetary policy
  • Members noted the rapid pace and extent of tightening to date implies monetary policy is now contractionary
  • Committee agreed it must continue to increase the official cash rate (OCR) to return inflation to the 1-3 percent target and to fulfil its remit
  • Committee agreed that the full impact of this monetary tightening is yet to be fully realised
  • Committee members observed that inflation is nevertheless still too high and persistent
  • Members viewed the risks to inflation pressure from fiscal policy as skewed to the upside
  • Economic growth in New Zealand is anticipated to slow through 2023
  • New Zealand’s banks are well capitalised, profitable, and have strong liquidity positions, with plenty of cash on hand
  • Rebuilding following recent extreme weather events will provide a boost to activity and inflation
  • Committee’s assessment is that there is no material conflict between lowering inflation and maintaining financial stability in New Zealand
  • Economy is starting from a slightly weaker position than assumed in the February statement
  • However, demand continues to outpace supply
  • Over the medium-term, the inflationary impacts of recent severe weather events are likely to be somewhat larger than assumed at the time of the February statement
  • Labour market remains strong, with employment continuing to expand
Reserve Bank of New Zealand Interest Rate

Wednesday’s move was the 11th straight rise, bringing a total of 450bps hikes since October 2021, the most aggressive tightening since 1999. 

Release date 5 March 2023

Source: RBNZ

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From The TradersCommunity Australian News Desk