MNI BRIEF: RBNZ Hikes 50bp, Continues To Tighten "At Pace"

The Reserve Bank of New Zealand raised interest rates by 50bp to 3.5% and signalled it would continue to tighten policy "at pace" as it revealed a 75bp hike had been discussed.

It was the eighth consecutive hike by the RBNZ since Oct 2021, delivering a cumulative 325bp of tightening and lifting the Official Cash Rate (OCR) to its highest level since early 2015. (See MNI STATE OF PLAY: RBNZ To Hike 50bps, Still Has Work To Do)

The Summary Record of Meeting showed the committee considered both a 50bp and 75bp hike in the OCR. "Some members highlighted that a larger increase in the OCR now would reduce the likelihood of a higher peak in the OCR being required. Other members emphasised the degree of policy tightening delivered to date. Members also noted the lags in monetary policy transmission and a slow pass-through to retail interest rates."

The RBNZ said core consumer price inflation was "too high", adding that core measures of inflation had risen and "persist". It said a range of indicators continued to highlight "broad-based pricing pressures". The weak NZ dollar was viewed as posing "upside risk" to inflation over the forecast period.

Employment was viewed as "beyond its maximum sustainable level" and labour resources were described as "scarce". The NZ dollar rallied after the decision.