MNI INTERVIEW: RBNZ To Hike 25bps, Former Official

A former leading Reserve Bank of New Zealand official said that the central bank will move ahead with a 25-basis point rate hike on Wednesday and could follow up with another increase in November.

Grant Spencer, a former RBNZ Deputy Governor who left the central bank in 2018 after 11 years, told MNI in an interview that despite some uncertainty over the length of pandemic restrictions he believed the RBNZ would move to tighten policy on Wednesday, see: MNI STATE OF PLAY: COVID Complicates RBNZ Rate Hike Prospect.

"Clearly we are on the way out of lockdown, even though Auckland is Level 3, but we now have the roadmap to open up and they really do have to look forward," Spencer said. "All the indicators are pointing towards tightening."

ECONOMY RUNNING HOT

Spencer said the underlying economy was still "running hot" with employment above its maximum sustainable level, core inflation above 2% and a booming construction sector.

He expected the economy to rebound strongly as restrictions were lifted and spending increased from pent up demand.

In terms of the RBNZ decision, he said the central bank would increase the Official Cash Rate from the current 0.25% by 25 basis points, but also be looking to the trajectory over the coming year and "thinking about continuous increases."

"It would be bold for them to be going the 50 basis points tomorrow, but they will be thinking about future increases and what is needed if these strong conditions continue to prevail," Spencer said.