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MNI BRIEF: RBNZ Policy Could "Inch" Tighter-Hawkesby

MNI (Sydney)

A slower pace of tightening is based on considered steps as pandemic conditions evolve.

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Reserve Bank of New Zealand Assistant Governor Christian Hawkesby on Tuesday has confirmed the central bank's change of outlook and hinted it could move slower in the tightening cycle than it did when it eased policy to combat the pandemic.

In a speech, Hawkesby said the RBNZ's actions over the pandemic were driven by a policy of "least regrets" where it moved quickly and took large steps to provide confidence. Ahead, economists widely expect the RBNZ to raise rates in October.

He said the way to look at RBNZ policy was not through a binary lens of either dovish or hawkish, and instead used the analogy of a native NZ bird, a heron, which would take considered steps depending on the circumstances, see: MNI INTERVIEW: RBNZ Deputy: Covid Only Delays Tightening Cycle.

"In the world of setting monetary policy, this translates to having confidence in the outlook for the economy and inching in the right direction based on how the economy is likely to evolve," Hawkesby said.

"This is consistent with the observation that when there is a typical amount of uncertainty, and the risks are evenly balanced, then central banks globally tend to follow a smoothed path and keep their policy rate unchanged or move in 25 basis point increments." The RBNZ had been expected to hike rates from the record low of 0.25% in August by as much as 50 basis points, but left rates unchanged due to the sudden lockdown due to the Delta outbreak.