Fourth New Zealand Central Bank Rate Hike Larger than the Others

April 13, 2022

The Reserve Bank of New Zealand’s Official Cash Rate has been raised twice as much as was expected this month. Today’s increase of 50 basis points followed three 25-basis point moves last October, November and February. CPI inflation in New Zealand increased to 5.9% last quarter, well above target, from 4.2% in 3Q, 3.3% in 2Q, 1.5% in 1Q and 1.4% in the final quarter of 2020. The first three OCR increases exactly reversed a cut of 75 basis points in March 2020, but officials now are racing to reestablish a policy-neutral rate level, according to a released statement:

Members noted that annual consumer price inflation is expected to peak around 7 percent in the first half of 2022. The risk of more persistent high inflation expectations has increased. The Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimize any unnecessary volatility in output, interest rates, and the exchange rate in the future.

The kiwi, nonetheless, fell a bit over 1.0%  against the dollar following the RBNZ announcement.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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