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MNI BRIEF: RBNZ Hikes OCR To 5.5% "Peak," Rates Restrictive

(MNI) Sydney

The Reserve Bank of New Zealand has raised the Official Cash Rate 25bp to its forecasted 5.5%, warning rates will stay higher “for the foreseeable future” as it aims to pull inflation back down to its 1-3% target.

The RBNZ noted in its quarterly Monetary Policy Statement published alongside the decision that the OCR had likely reached its peak and forecasted a slightly faster pace of cuts (see chart below).

The decision lead to a swift retracement of the market’s estimation of peak rates, with the overnight index swap rate now pricing in a slim chance of a further hike at the August 16 meeting. Prior to the decision, OIS markets had expected an OCR peak at 6% (see: MNI RBNZ WATCH: Hike Expected as Key Inflation Inputs Sticky). The New Zealand dollar weakened following the announcement, falling 1.1% against USD to 0.6180, while New Zealand bonds rallied (see: NZD Down 1%, As RBNZ Sees OCR At ITs Peak).

In a statement, the Reserve noted the OCR’s levels had constrained spending and inflation pressure. “Inflation is expected to continue to decline from its peak and with it measures of inflation expectations. However, core inflation pressures will remain until capacity constraints ease further.”

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