MNI STATE OF PLAY: RBNZ Sets Scene for 2022 Rate Hike

The Reserve Bank of New Zealand signalled Wednesday that it may be among the first developed world central banks to raise official rates with the updated projections in its quarterly Monetary Policy Statement.

While the RBNZ left the Official Cash Rate (OCR) on hold at the record low of 0.25%, the statement included -- for the first time since the global health crisis stated -- forecasts for the OCR with a projected increase in September 2022.

The decision to leave current settings unchanged was in line with expectations.

RBNZ Assistant Governor Christian Hawkesby was keen to clarify in the press conference following the policy decision that these were "conditional" estimates and "not forward guidance" but the message from the RBNZ was clear: if the bank's baseline projections are met then rates should begin to rise in September 2022.

"We will revisit the forecasts every six weeks and every three months," said Hawkesby.

The central bank's forecasts have the OCR up to 1.5% by December 2023, when it sees inflation at an annualised 2.2%. The RBNZ inflation target is a sustainable mid point between 1% and 3%.

DEBT PURCHASE LIMIT

Addressing the Large Scale Asset Purchase plan, the RBNZ conceded that the NZD100 billion figure for government bond buys by June 2022 was a "limit, not a target" and was constrained by a lack of fresh debt issuance by the NZ Government.

The RBNZ has put a ceiling of buying 60% of issued Government debt, but with only around NZD130 billion issued it is impossible to stick to the ceiling and fully implement the initial target size in bond buys. The statement also noted that reduced issuance was "placing less upward pressure on New Zealand government bond yields."

CONDITIONALITY

In its latest statement, the Monetary Policy Committee said it "noted on current projections the OCR eventually increases over the medium term, but agreed that this is conditional on the economic outlook evolving broadly as anticipated."

Policymakers agreed to maintain the current stimulatory monetary settings until there was confidence that "consumer price inflation will be sustained near the 2 percent per annum target midpoint, and that employment is at its maximum sustainable level." Meeting these requirements will necessitate "considerable time and patience," the statement added..