The Reserve Bank of New Zealand (RBNZ) yesterday raised its key interest rate by another half-percentage point and sees it climbing to at least 4 percent, cementing its place at the forefront of global tightening.
The bank’s Monetary Policy Committee lifted the official cash rate (OCR) to 3 percent as expected, while increasing and bringing forward its forecast rate peak.
“RBNZ communication today was strikingly hawkish,” said Andrew Ticehurst, senior economist and rates strategist at Nomura Holdings Inc. “Many market participants appear to have been on the look-out for a potential dovish pivot today” and had to adjust.
Photo: AP / New Zealand Herald
New Zealand policymakers are trying to strike the same balance as their US Federal Reserve counterparts: rein in the fastest inflation in more than a generation without cratering the economy. While unemployment has edged up and house prices are falling, consumption is holding up and supporting growth.
New Zealand’s 2.75 percentage points of hikes in the past 10 months are the most aggressive tightening cycle it has delivered since pioneering inflation targeting more than 30 years ago. It currently exceeds the Fed and Bank of Canada’s 2.25 points.
“Our view is that sitting around that 4 percent official cash rate level buys the Monetary Policy Committee right now significant comfort that we would have done enough to see inflation back to our remit,” RBNZ Governor Adrian Orr told reporters after the decision, referring to the central bank’s 1 to 3 percent target.
The RBNZ’s updated forecasts yesterday showed the OCR peaking at 4.1 percent in the second quarter of next year versus a May estimate of 3.95 percent in the third quarter of that year. The new track shows the OCR gradually declining from 2024.
“The committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment,” the RBNZ said in a statement. “Core consumer price inflation remains too high and labor resources remain scarce.”
New Zealand’s inflation is running at 7.3 percent, the fastest pace in 32 years. The central bank predicted it would slow to 5.8 percent by the end of this year — higher than the 5.5 percent seen in May.
Inflation would ease to 3.8 percent by the end of next year and would not return to the midpoint of the target until the middle of 2024, it said.
Meanwhile, wages are rising at the fastest pace since 2008 and set to further accelerate as firms struggle to secure labor.
The bank projects annual average economic growth of 2.8 percent in the year through March next year, slowing to 0.8 percent in the 12 months through March 2024. Previously, it saw 2023-2024 growth of 1.3 percent.
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