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MNI RBNZ WATCH: OCR Path Rethink As Core Inflation High

(MNI) Sydney

The Reserve Bank of New Zealand has revised up its nominal neutral Official Cash Rate 25bp to 2.25% and pushed out the profile of its OCR, meaning the central bank may believe rates need to move higher to constrain the economy further.

In the RBNZ’s monetary policy committee meeting minutes released following its decision to hold its benchmark rate at 5.5% Wednesday (See MNI BRIEF: RBNZ Holds OCR, Pushes Out Forecasts), the MPC noted the nominal neutral increase was consistent with the the RBNZ’s indicator suite and the that the OCR "remains contractionary and is constraining domestic spending as needed." However, the Reserve also updated its peak OCR forecasts within the August Monetary Policy Statement, increasing the peak OCR rate slightly out to H1 2024 and extending its duration (see chart).

The MPC’s decision had little impact on market expectations, with the overnight index swap market pricing in a 40% chance of a 25bp hike by at the November meeting. New Zealand Government Bonds were little changed following the announcement (See NZGBS: Little Changed After The RBNZ Leaves The OCR At 5.50%)


New Zealand core inflation has failed to moderate over the last two quarters, unlike that of peer economies, likely contributing to the revised nominal neutral and OCR forecasts. While annual CPI inflation declined to 6.0% in the June quarter, “measures of core inflation remain near their recent highs,” the MPC noted in the minutes.

Trimmed mean inflation has fallen from its peak 18 months ago, but has not significantly moved over the last two quarters. MNI reported in July that sticky core inflation could force the RBNZ to reevaluate its peak OCR estimate.


Most of the RBNZ’s updated forecasts remained unchanged, reinforcing the Reserve’s belief it remains on track to pull inflation back to its 1-3% target, while maintaining sustainable employment, by Q3 2024.

Governor Adrian Orr admitted in a press conference a further hike was possible, though an earlier-than-expected cut was not off the table as pressure mounted on the economy, from factors including a slowdown in China. He noted the higher OCR track was not forward guidance or a strong signal on the Bank's next move.

The RBNZ’s MPC will next meet October 4.

Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.
Daniel covers the Reserve Bank of Australia and the Reserve Bank of New Zealand and leads the Asia-Pacific team.

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