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Highlights
- The Central Bank lifts the OCR by 25 bps.
- Forecasts OCR to reach above 3.25% by 2024.
- Agrees to reduce the stimulus to maintain prices and provide employment.
The Central Bank finally delivered an expected outcome by raising the official cash rate (OCR) by 25 bps to reach 1% in its monetary policy meeting today.
In his Policy statement, the Governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr, said that more hikes were on the way.
The Monetary Committee also agreed that it was appropriate to reduce the stimulus to maintain price stability and provide employment over the medium term.
The Central Bank is now forecasting the OCR to reach above 3.25% by 2024 as against its forecast of 2.5% in November.
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The Reserve Bank had forecast the OCR to reach above 3.25% by 2024. In its November statement, it had forecast a peak of 2.5%.
The Bank said that the inflation was being led by global economic activity and fueled by ongoing supply chains disruptions. To top this is the uncertainty over persistent impacts of the COVID-19 pandemic. Due to all these factors, monetary conditions will have to be tightened throughout 2022.
Also Read: Is COVID-19 the main reason for a dip in business confidence among Kiwis?
Image source: © 2022 Kalkine Media New Zealand Ltd
In NZ, the economy continues to be strongly supported by fiscal policy support, aggregate household balance sheet support, and strong export returns. However, some economic disruption is expected to stay due to growing Omicron cases.
The bank in its release said that the Consumer Price Index (CPI) was also well above the target. But the bank expects it to return to 2% over the years. Short-term inflation is high due to higher oil prices, rising transport costs, and supply-chain disruptions.
Therefore, the RBNZ in its statement said that the removal of monetary policy stimulus was expected given the outlook for growth and employment and upside risks of inflations.
Markets were expecting a 50 bps hike but the RBNZ delivered what most economists had expected due to economic uncertainty caused by a surge in the Omicron variant.
When deciding whether to move the OCR up by 25 or 50 basis points, many members saw this as a finely balanced decision," the Governor said in the statement.
Also Read: Is Australia staring at stagflation in 2022?
The committee noted that a balance had to be maintained between high inflation and uncertainty in the economic environment. Orr also pointed out that the members readily agreed to a 25 bps lift in the OCR as they felt that the interest rates had risen significantly last year and were expected to rise as the OCR would have to be raised in the upcoming period.
Markets moved up on the news. The benchmark index NZX50 was marginally up by 0.22% at 12,142, at the time of writing.
The Kiwi dollar moved up slightly on the news and firmed up to US67.55 cents compared to US$67.38.
Bottom Line: The RBNZ delivered a hawkish monetary statement today while raising the OCR by 25 bps. The Central Bank has forecasted the OCR to reach above 3.25% by 2024 as against its earlier forecast of 2.5% in November.
