50bp Hike Surprises, Recent Price Pressures Have Increased

The RBNZ unexpectedly hiked rates 50bp to 5.25%, in contrast to the RBA’s pause at 3.6%. It was widely expected that rates would rise 25bp, following recent overseas banking turmoil. 25bp was considered by the Committee but it opted for 50bp because inflation remains “too high and persistent” and the labour market too tight. It agreed that the sooner demand and supply were brought back into balance, the less damage elevated inflation would do.

• The Committee noted that recent financial market turmoil had reduced wholesale rates significantly since February and that this could feed through to lower lending rates. Therefore, it was necessary to hike by 50bp to keep lending rates at current levels.
• It was concerned that near-term price increases related to recent weather events would result in increased inflation expectations. It also said that rebuilding would support the economy and that the addition to inflation pressures if more than thought in February.
• The press release spent some time on assuring that NZ’s financial stability was not at risk from recent banking troubles or significant monetary tightening.
• Policy is contractionary.