As expected the Reserve Bank of NZ has lifted its official cash rate (OCR) by half a per cent to 3%, from 2.5% previously and the highest it has been for seven years.
The RBNZ’s Monetary Policy Committee “agreed 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 remains too high and labour resources remain scarce,” The central bank said in its statement on Wednesday.
For those reasons the RBNZ is set to continue tightening monetary policy by lifting rates. The OCR is now at its highest level since 2015.
That’s supported by the central bank also tweaked its expectations of the changes it would make to the OCR over the next few years, until September 2025, suggesting interest rates could rise a bit faster than it had previously predicted.
Its official forecast now sees the OCR peak at 4.1% from the middle of next year, rather than at 3.9%.
Its previous monetary policy statement in May had implied the OCR would only reach its peak by the middle of next year and would stay at about 4% until late the following year, before then starting to slowly drop.
But its new forecast sees the OCR reaching 4% by March.
Depending on the path of inflation, that suggests the RBNZ will lift rates twice more by 0.50% to reach the 4% level – by the end of the year.
“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. The Committee remains resolute in achieving the Monetary Policy Remit.”
The RBNZ’s statement recognised a slowing in inflation in some parts of the world (the US for example where petrol prices have fallen back under $US4 a gallon).
“Global consumer price inflation has continued to rise, albeit with some recent reprieve from lower global oil prices. The war in Ukraine continues to underpin high commodity prices, with global production costs and constraints further exacerbated by supply-chain bottlenecks due to the ongoing COVID-19 health challenge.
“The outlook for global growth continues to weaken, reflecting the ongoing tightening in global monetary conditions.
In New Zealand the RBNZ said domestic spending “has remained resilient to global and local headwinds to date. Spending levels are supported by a robust employment level, continued fiscal support, an elevated terms of trade, and sound household balance sheets in aggregate.”
“However, production is being constrained by acute labour shortages, heightened by seasonal and COVID-19 related illnesses. In these circumstances, spending and investment continues to outstrip supply capacity, and wage pressures are heightened. A range of indicators highlight broad-based domestic pricing pressures,” the RBNZ said.
