MNI INTERVIEW: RBNZ To Hike To 1.75% By End 2022

The Reserve Bank of New Zealand is likely to hike rates in August and possibly in November as well, tightening by up to 50 basis points this year and to 1.75% by the end of 2022 after rising inflation expectations robbed it of the opportunity for a slow and steady tightening, former senior RBNZ economist Sharon Zollner told MNI.

Zollner, now chief economist at ANZ, said the pace of inflation had caught observers – including herself – as well as the RBNZ by surprise.

"Fiscal and monetary policy have overcooked it," she said. "But I don't want to throw rocks, because we all thought the world was ending and we were too conservative in our estimates for the recovery."

DIGGING THE NEXT RECESSION DEEPER

At its meeting this week, the RBNZ kept official rates on hold at the record low of 0.25% but decided to halt its purchases of government bonds, while still well short of the NZ$100 billion target. Second quarter inflation data released today jumped by 1.3 percentage points from Q1 to 3.3%, crashing through the RBNZ target range of 1% to 3%.

"Right at the moment we are digging the next recession deeper in order to make the current boom stronger, and that is the opposite of what monetary policy is trying to do," said Zollner, who was a senior economist at the RBNZ until 2006.

"The longer we go on with this debt-fueled silliness the worse off we'll be."

Alongside May's Monetary Policy Statement, the RBNZ released an estimate showing the Official Cash Rate at 0.67% by the end of 2022.