Unlike the Reserve Bank of Australia which halved its rate rise to 0.25% on Tuesday from August’s 0.50%, the Reserve Bank of New Zealand has continued to hammer the country’s economy with another half a per cent lift in its official cash rate (OCR).
The RBNZ revealed the expected 0.50% lift in the OCR to 3.5% and gave little sign of any let up in the size or pace of increases, unlike the RBA which while not ruling out further rate rises, has also made them a bit data dependant (especially their size).
But across the Tasman there will be more rises to come with most NZ economists saying they expect the RBNZ to follow up with a further half a per cent rate rise in November that would take the OCR to 4%.
The bank’s Monetary Policy Committee said in Wednesday’s statement that “it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment. Core consumer price inflation is too high and labour resources are scarce.”
The committee maintained its previous hawkish tone by saying it had considered whether to increase the OCR by 75 basis points, instead of half a per cent, which was the outcome.
The bank made a similar comment after its August meeting, though governor, Adrian Orr later clarified it had also discussed the option of a 0.25% increase as well.
“Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range,” Wednesday’s statement read.
“New Zealand’s productive capacity is still being constrained by labour shortages and wage pressures are heightened. Overall, spending continues to outstrip the capacity to supply goods and services, with a range of indicators continuing to highlight broad-based pricing pressures.
“In New Zealand, the level of domestic spending has remained resilient to date, in the face of slowing global growth and higher domestic interest rates. Employment levels are high, and household balance sheets remain resilient despite the fall in house prices.
“Global consumer price pressures remain heightened. The global demand for goods and services is exceeding supply capacity, putting upward pressure on prices. Food and energy prices are being particularly exacerbated by the war in Ukraine.
“A recent decline in oil prices and an easing in some supply-chain constraints have seen headline inflation measures fall in some countries. However, core measures of inflation have risen and persist. Central banks are tightening monetary conditions, implying a weaker growth outlook for New Zealand’s trading partners.”
