NZD - RBNZ hikes cash rate by 25bps as expected

Reserve Bank of New Zealand

• says more tightening needed
• says also agreed to commence the gradual reduction of the reserve bank’s bond holdings under the large scale asset purchase (LSAP) programme
• agreed it remains appropriate to continue reducing monetary stimulus
• some short-term economic disruption is expected given the current growing covid-19 Covid-19 Covid-19 or the novel Coronavirus is a pandemic that has yielded wide ranging economic turmoil and volatility across financial markets in 2020. The first cases of Covid-19 were reported in Wuhan, China in late 2019. Since then, the virus has expanded globally, infecting millions worldwide. The virus has been extremely controversial, namely in the United States, which became heavily politicized during the 2020 presidential election. The Covid-19 pandemic is completely unprecedented in modern ti Covid-19 or the novel Coronavirus is a pandemic that has yielded wide ranging economic turmoil and volatility across financial markets in 2020. The first cases of Covid-19 were reported in Wuhan, China in late 2019. Since then, the virus has expanded globally, infecting millions worldwide. The virus has been extremely controversial, namely in the United States, which became heavily politicized during the 2020 presidential election. The Covid-19 pandemic is completely unprecedented in modern ti Read this Term health challenge.
• says economic capacity pressures have continued to tighten
• headline CPI inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term is well above the reserve bank’s target range, but will return towards the 2 percent midpoint over coming years

Forecasts ....

• RBNZ sees official cash rate at 1.49% in June 2022 (pvs 1.51%)
• RBNZ sees official cash rate at 2.57% in March 2023 (pvs 2.3%)
• RBNZ sees twi nzd at around 71.6% in March 2023 (pvs 75.1%)
• RBNZ sees annual cpi 3.2% by march 2023 (pvs 2.9%)
• RBNZ sees official cash rate at 2.84% in June 2023 (pvs 2.4%)
• RBNZ sees official cash rate at 3.35% in March 2025

RBNZ minutes:

• committee also affirmed that it was willing to move the OCR in larger increments if required over coming quarters
• OCR is expected to peak at a higher level than assumed at the November statement
• sales of the bank’s LSAP bond holdings may put some upward pressure on longer-term interest rates
• many members saw this as a finely balanced decision whether to move the OCR up by 25 or 50 basis points
• committee agreed that higher interest rates were consistent with house prices becoming more sustainable
• impulse to growth from fiscal support is now ebbing and will wane
• committee reached a consensus not to reinvest the proceeds for any upcoming LSAP maturities

RBNZ says

• says committee agreed that further removal of monetary policy stimulus is expected over time
• says headline cpi inflation is well above the reserve bank’s target range, but will return towards the 2 percent midpoint over coming years
• employment is now above its maximum sustainable level
• says broad range of economic indicators highlighting that the New Zealand economy continues to perform above its current potential.
• says managed sales of bond holdings, in addition to not investing the proceeds of maturities, were most consistent with achieving their mandate over time
• says intends to commence bonds sales in July

Headlines summary above is via Reuters

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The hike was as expected although some had been tipping 0.5%. The statement, minutes, and forecasts are all leaning more hawkish, the jump in NZD/USD reflecting this.

Governor Orr is up next, at 0200 GMT. The guy is a man of action, not waffle like some other central bankers.