RBNZ to announce OCR rates on Wednesday, what to expect?

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Highlights

  • The Central Bank of NZ to announce the official cash rates (OCR) Wednesday
  • It is almost certain that it will raise the OCR
  • According to most of the economists, it will raise the OCR by 50 bps

It is almost certain that the Reserve Bank of New Zealand (RBNZ) will raise the official cash rate on Wednesday, but by how much is what is being debated.

Analysts are again betting on a 50-basis point (bps) raise to beat inflationary pressure on the economy, but the alternative scenario of a 25 bps isn’t being completely ruled out due to a slowdown in growth.

Last month, the Central Bank of New Zealand delivered a 50-bps hike in the OCR, which was the biggest increase in two decades and the Reserve bank signaled that more such hikes were needed to bring the NZ inflation under control after it had hit a 6.9% in last quarter.

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Most economists are of the view that the RBNZ would raise the OCR by 50 bps. One or two economists are expecting a 25-bps increase. Bond market investors, in particular, have been pricing in a small chance that the central bank would opt to raise the rate by only 25 basis points to 1.75%.

Also Read: NZ Budget 2022: Key spending areas in a nutshell

This would be the first time that the RBNZ would raise the rate by 50 bps at two consecutive policy meetings.

According to ANZ’s Chief Economist Sharon Zollner, the RBNZ's strategy appears to be to take the foot off the gas rapidly and then tread more cautiously on the brake. Downside risks are there but inflation is the main concern currently.

Also Read: What is wage inflation and how is it different from consumer price inflation?

Also Read: Healthcare, climate change to be main focus in upcoming NZ Budget: Grant Robertson

Future Forecasts

Monetary policy review meetings held four times a year give a new forecast for OCR hikes. It provides an update in which the RBNZ expects the OCR to be in the next three years.

Also Read: No silver bullets to tackle inflation,says FM Grant Robertson

Related Read: Inflation is on the rise, hits 6.9% according to StatsNZ

Related Read: In a hawkish move, RBNZ raises OCR by 50 basis points

In the February monetary review meeting, the Reserve Bank had forecasted the OCR to rise to about 2.2% in December and 3% in September next year. These forecasts will be changed Wednesday in view of the current situation and will also be changed in the August policy review as well. It now expects the OCR to be at 2.5% by the end of September rather than December as stated in the February monetary policy statement.

Inflation Versus slowing growth

Most economists are expecting the cash rate to hit 3% by the end of the year.

Also Read: Is Inflation likely to take a breather by the end of 2022?

However, while inflationary pressure is high in the economy, a significant drop in property prices means that the demand is colling off and the RBNZ’s steps are having the desired impact.  However, slower consumer spending could further lead to slower economic growth.

However, a significant decline in property prices could dent household wealth and result in slower consumer spending, eventually leading to slower economic growth. With that possibility, the RBNZ has to strike a balance between cooling inflation and not impacting the growth.

It is expected that with this in mind, it will raise the OCR by 25 bps in the next two policy statements of August and November.

Bottom Line: RBNZ will deliver its monetary policy statement tomorrow. It will raise the OCR again, by how much is to be seen.


 


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