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

Highlights

• The central bank tipped to raise the OCR on Wednesday
• Whether it raise a 0.25 basis point or will there be a double-hike
• The Governor of Reserve Bank also indicated a hike

The latest employment numbers announced by Stats NZ reinforced the expectations of economists and analysts alike on the news of interest rate hike by the Reserve Bank of New Zealand (RBNZ). Some have been talking of a double hike of the official Cash Rate this week when the RBNZ announces its monetary policy statement, while others are sticking to expectations of no more than 0.25 basis point hike.

Regardless, New Zealand is likely to see a rate hike as the economic news is good from all over.

The recent numbers released by Stats NZ on the jobless rate falling to 4% from a revised 4.6% have only strengthened the expectation of a rate hike. However, rising inflation numbers have given a strong signal that RBNZ would now move to raise interest rates on 18 August when it holds its monetary policy meeting.

Also Read: OCR hike imminent as NZ jobless rate falls to 4%

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Also Read: Strong biz confidence pulls NZ interest hike expectations to Nov; NZD rises

While a majority of economists are expecting the OCR to rise by only 0.25 basis points, taking it from 0.25% to 0.50%, few economists from ASB and Bank of New Zealand have scaled up their expectations — they are expecting three rate rises by the end of this year, taking the cash rate to 1%.
Also Read: RBNZ keeps OCR unchanged but ends quantitative easing

ANZ economist Sharon Zollner said that it was very clear that the New Zealand economy no longer required a monetary stimulus as NZ’s success in eliminating the COVID-19 pandemic had helped the economy to bounce back with full force. However, a step ahead, it is showing signs of heating up as inflation is rising and joblessness is falling.

According to Zollner, it is only a 10% chance that there may be no hike at all, 65% on 10% odds on no hike, 65% on a 25 basis point hike, and 25% on a 50 basis point hike.

RBNZ Governor Adrian Orr had also indicated an increase in the interest rate so that the monetary settings neither push forward nor hold back the economy.

Also Read: Inflation makes NZ consumers worried, new data shows price rise to 3.3%

On Wednesday, if the RBNZ announces a rate increase, New Zealand will become the first country in Asia-Pacific to increase interest rates. Even Australia has so far kept its interest rate unchanged.

Countries like Brazil and Russia raised interest rates three times this year.  Mexico, the Czech Republic and Hungary have also made some policy moves. However, most developed economies have held on to the low interest rates with the Federal Reserve not looking at tinkering with interest rates till 2022 and Australia, not before 2023.

Also Read: The week ahead: Key economic data to watch

The expectation of a rate hike had made the NZ dollar move up last week.