Reserve Bank of New Zealand Raised Rate 25 Basis Points as Expected

The Reserve Bank of New Zealand raised its Official Cash Rate from 0.50% to 0.75% as expected as capacity pressures have continued to tighten. RBNZ says headline CPI inflation is expected to measure above 5 percent.

RBNZ
RBNZ

Reserve Bank of New Zealand raise its Official Cash Rate from 0.50% to 0.75%

The rise in the official cash rate comes after last month’s which was the first since 2014 when the OCR hit a post-GFC peak of 3.5 per cent.

RBNZ projections for the path ahead:

  • Sees official cash rate at 0.94% in March 2022 (previously 0.86%)
  • at 2.14% in December 2022 (pvs 1.62%)
  • at 2.3% in March 2023 (pvs 1.77%)
  • at 2.61% in December 2024
  • Sees annual CPI 3.3% by December 2022 (pvs 2.2%)

Statement Highlights

  • Says headline CPI inflation is expected to measure above 5 percent in the near term before returning towards the 2 percent midpoint over the next two years.
  • says immediate relative price shocks risk generating more generalized price rises
  • capacity pressures have continued to tighten
  • broad range of economic indicators highlight that the New Zealand economy continues to perform above its current potential.
  • household spending and business investment will be dampened in the near-term by ongoing covid-19 health uncertainties
  • says recent nationwide health-related lockdown and restrictions in Auckland resulted in a sharp contraction in economic activity
  • says capacity pressures have continued to tighten

RBNZ Governor Orr Press conference

  • Reopening of the New Zealand border does not change the policy outlook 
  • 25bp hike gives more options, can take time at this point
  • Not worried about rising wages, these have been well behaved
  • Given huge debt loads we must exercise caution
  • House price rises will alleviate as interest rates rise
  • Orr says he sees steady 25bp steps as the balanced approach for now
  • sees the OCR (official cash rate) at 2.5% by the end of 2023

KiwiBank Commentary:

The time of cheap money is over, and interest rates are rising, swiftly. The RBNZ hiked the cash rate 25bps today, and signaled many more to come.

KiwiBank OCR Track

Source: RBNZ

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