RBNZ hikes cash rate by 50bp, as widely expected

Reserve Bank of New Zealand monetary policy decision 22 February 2023.

A +50bp cash rate hike takes the OCR from 4.25% to 4.75% as the Bank battles to rein in 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.

RBNZ sees official cash rate at 5.14% in June 2023 (prior 5.41%)

• At 5.5% in March 2024 (prior 5.5%)
• Sees official cash rate at 5.5% in June 2024 (prior 5.5%)
• Sees official cash rate at 4.05% in march 2026
• Sees NZD TWI around 71.5 in March 2024 (prior 70.0)
• Sees annual cpi 4.2% by March 2024 (prior 3.8%)

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Committee remains resolute in achieving the monetary policy

• Committee members agreed that monetary conditions needed to continue to tighten further
• While there are early signs of price pressure easing, core consumer price inflation remains too high
• Employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated.
• Committee will look through short-term output variations and direct price effects of cyclone damage
• While there are early signs of demand easing it continues to outpace supply, as reflected in strong domestic inflation

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From the RBNZ minutes:

• Increases of 50 and 75 basis points were considered
• Inflation is currently too high and employment is beyond its maximum sustainable level
• Committee agreed it must continue to increase the official cash rate (ocr) to return inflation to target and to fulfil its remit
• Balance of risks around inflation remain skewed to the upside
• The extent of this risk had moderated somewhat since November
• Committee members discussed the effects of Cyclone Gabrielle and other recent severe weather events
• Members noted the rapid pace and extent of tightening to date implies monetary policy is now contractionary
• Economic impacts discussed by the committee from weather events included the immediate upward pressure on some prices
• Committee agreed that the medium-term impacts of the severe weather events do not materially alter the outlook for monetary policy
• Committee agreed that housing market related activity was a downside risk
• As debt servicing costs rise, spending decisions for many households will become increasingly constrained
• As in the November statement, the central projections show a decline in GDP this year
• Resilience of household balance sheets is seen as a downside risk

Background to this:

• RBNZ Shadow Board recommend +50bp interest rate hike this week at monetary policy meeting

• NZ Treasury says cyclone reconstruction will boost economic activity, RBNZ implications

• RBNZ meet this week - flooding, cyclone events bolster the case for a pause

• Reserve Bank of New Zealand policy decision due mid-week. Preview & NZD implications.

• Reserve Bank of New Zealand rate decision on Wednesday. What levels are in play for NZDUSD

Reserve Bank of New Zealand Governor Orr. His press conference is due an hour from now:

• 4pm NZ time
• 0200 GMT
• 9pm US Eastern time