RBNZ hikes OCR by 0.50%, thereby decreasing monetary stimulus

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RBNZ hikes OCR by 0.50%, thereby decreasing monetary stimulus

Reserve Bank Of New Zealand, OCR
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Highlights

  • New Zealand’s Central Bank has of late declared raising the OCR by 0.25 bps.
  • The decision was taken to decrease the monetary stimulus pumped into the economy, as the NZ economy is on track to recovery.
  • Many economists were expecting this move by the RBNZ since August 2021.

In the latest announcement, the Reserve Bank of New Zealand has lifted the Official Cash Rate (OCR) by 25 basis points to 0.50%.

It has now become the third OECD Central Bank that has raised its benchmark rate ever since the outbreak of the pandemic in March 2020.

Related Read: Will RBNZ be the first central bank to raise interest rates?

The said move by the RBNZ was hugely anticipated by many economists, as New Zealand has been witnessing the building up of inflationary pressures for quite some time.

The Central Bank stated that it was the need of the hour to decrease the monetary stimulus being pumped into the economy to maintain low levels of inflation and ensuring maximum sustainable employability.

RBNZ increases official cash rate

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Why is there the need for reduced monetary aid by central banks worldwide?

With the opening of markets globally, many economies are recovering, aided by the monetary and fiscal policies of the respective national governments.

In spite of the resurgence of the virus and uncertainties around the pandemic, people are becoming optimistic about the future of their businesses and their country with the rollout of vaccination programmes.

Do Read: RBNZ says the least regrets strategy helped in economic recovery

Further, cost pressures have been mounting and few central banks have initiated the process of lowering down the monetary policy stimulus.

NZ’s economy on road to recovery

Since New Zealand was one of the few countries which was successful in containing the initial spread of the virus, the country’s economy is progressing relatively well, even under the present conditions of lockdowns and restrictions.

With households and businesses posing strong, underpinned by government support as well as strong terms of trade, the NZ economy is resilient and is on track to revival.

Also Read: More Kiwis show confidence in financial markets, prefer shares to term deposits

Hence, the Reserve Bank of New Zealand was contemplating rolling back its monetary stimulus, which it has extended to various sectors for quite some time.

Increased OCR aimed at stabilising house prices

With the declaration of the raised OCR by the NZ Central Bank, Kiwi authorities now are expecting a certain level of constraint in house price escalations.

Also, the Central Bank will keep a close watch on how the economy is adjusting to the increased OCR rates.

Related Read: RBNZ to raise OCR on Wednesday, by how much, is the question?

It is pointed out that some economists were speculating that the Central Bank would double hike the OCR to 50 basis points, i.e., to 0.75%. However, the bank strongly stated that such a step was not feasible as a more cautious and prudent monetary policy was the need of the hour.

Interesting Read: How are 5 NZX financial stocks faring after RBNZ held OCR at 0.25%?

Bottom Line

The Reserve Bank of New Zealand is taking significant steps to control inflationary trends prevailing in the country, particularly rising property prices, and is also monitoring the country’s employment rates.

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