AUS
NZ
UK
CA
USA
IND
Highlights
- As expected, the Reserve Bank of New Zealand raises the OCR by 50 bps
- This brings the OCR from 1.5% to 2%
- Expecting to raise the OCR more to bring down inflation to remit levels
The Reserve Bank of New Zealand (RBNZ) Wednesday raised the official cash rate by 50 bps, from 1.5% to 2% to tackle inflation which had hit 6.9% in the last quarter.
In its Monetary Policy statement, the central bank also increased its forecast of how high the OCR might rise. It is now expecting the rate to reach at 3.4% by the end of this year.
In last month’s monetary review, the Central Bank had announced a 50-bps hike in the OCR, and had pointed at more of such hikes to bring rising inflation under control.
Source: © 2022 Kalkine Media®
This was expected along the lines as most economists’ surveys had predicted a double hike, taking the OCR to 2%.
In its statement, the Committee said that it was appropriate to tighten monetary conditions to maintain price stability and support maximum employment levels.
It said that the aim was to bring the consumer price inflation between 1% to 3% target range set by the Central Bank.
The economic outlook and risks ahead in the economy made it necessary for the Reserve Bank to match the demand with supply. The level of global economic activity was generating rising inflation pressures, fueled by ongoing supply disruptions due to the COVID-19 pandemic and the Russian invasion of Ukraine.
Also Read: RBNZ to announce OCR rates on Wednesday, what to expect?
Related Read: Does Budget 2022 address cost-of-living crisis in NZ?
New Zealand economy
Even though underlying strength stays in New Zealand economy, it has a strong labor market, sound household balance sheets, and strong terms of trade. Yet, there are significant headwinds in the system, like global economic uncertainty, higher inflation and low consumer and business confidence.
Future rate hikes
In this scenario, the RBNZ said that it would continue to raise the OCR to a level that will bring consumer price inflation to within target levels.
The Committee said that it would continue to raise the OCR with employment and inflation as major concerns. It also said that this would be done without causing unnecessary instability in output, interest rates and the exchange rate.
Once demand and supply are more in balance, the RBNZ will turn back the OCR to lower levels.
Bottom Line: The Central bank of New Zealand has delivered a 50-bps rate, taking the OCR rate to 2% in a short span of three months. This has been done to tame raging inflation, which is at 6.9% currently and is likely to go up in next quarter.
