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MNI (Sydney)

New Zealand's Official Cash Rate (OCR) may not see hikes as high as in previous cycles because of a “tailwind” from government legislation to curb housing prices and as windows on policy changes are judged by actions at key central banks, according to a former RBNZ official.

Grant Spencer, a former Deputy Reserve Bank of New Zealand Governor who left the bank in 2018 after 11 years, told MNI in an interview that he expected the central bank to hike the Official Cash Rate by 25 basis points to 1.0% at its next meeting on Feb. 23, but the RBNZ may choose not to tighten at every opportunity this year.

“The RBNZ has seven opportunities to tighten this year and they probably won’t need to use all of them,” Spencer said.

“Five increases of 25 basis points each time is a reasonable expectation, because they have shown they are not keen on big moves, and that would take the OCR to 2% by the end of the year.”

The bank increased rates by 50 basis points in the latter part of 2021 in a response to inflation, which reached an annualised 4.9% in the third quarter and is expected to show an increase to 5.5% when Q4 data is released on Thursday, see: MNI STATE OF PLAY: RBNZ To Hike In 25bps Increments-Governor.


Spencer noted that the RBNZ’s last Monetary Policy Statement included a track for the OCR which had rates at 2.5% at the end of 2023.

But Spencer said it was becoming clear that the housing market, which saw prices rise by an average of 25% last year, was cooling as mortgage rates increased and in response to government legislation on credit contracts, which has caused banks to tighten their lending policies.

“The RBNZ won’t be leaning against the wind as much as they have in previous cycles,” he said.

“Monetary policy is also more effective when you have other central banks moving in the same direction, and I think that is going to be another factor in their favour this year," he said, see: MNI STATE OF PLAY: FOMC To Signal March Hikes Start, Debate QT.

“These other factors should mean that the overall OCR increase does not need to be as large as, for example, the tightening cycle leading into the GFC (global financial crisis),” he said.

Spencer said there was still uncertainty around the impact of the Omicron variant on economic activity, but the pattern of the pandemic so far showed that supply-side disruptions can make the excess demand situation in the economy “worse, not better.” The RBNZ should therefore press ahead with its tightening program, he said.
MNI Sydney Bureau | +61-405-322-399 |
MNI Sydney Bureau | +61-405-322-399 |

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