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MNI (Sydney)
SYDNEY (MNI)

New Zealand’s central bank said on Wednesday that moving to a neutral stance sooner would reduce the risk of rising inflation expectations amid an uncertain economic outlook as it moved to hike interest rates by 50 basis points.

"A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment, the RBNZ said in its statement, see: MNI BRIEF: RBNZ Cites Likely 7% Inflation In 50bps Rate Rise.

It was this “least regrets” approach to interest rates which prompted the RBNZ to increase the Official Cash Rate (OCR) to 1.50%, a rate the bank says is still stimulatory. In the minutes of the meeting, the RBNZ said that "this ‘stitch in time’ approach is consistent with near-term financial market pricing."

The RBNZ had earlier been expected to hike by 25bps, as it has done three times at every meeting since October, but rising concerns on inflation over the last week saw many market participants expect a larger increase.

MONETARY POLICY STAEMENT VIEWS

The RBNZ usually reserves major moves on policy for meetings which coincide with an updated Monetary Policy Statement (MPS), with the next one due in May.

"The committee will remain focused on ensuring that current high consumer price inflation does not become embedded into longer-term inflation expectations, the RBNZ said, adding that it "remained comfortable with the outlook for the OCR as outlined in their February (MPS)."

In the February MPS, the RBNZ outlined a track for the OCR reaching 3% by September next year and said the larger 50bps rise was still consistent with the forward path. The committee "agreed that moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations."

On inflation, which came in at 5.9% in the last quarter of 2021, the RBNZ said it was now expecting annual consumer price inflation to peak at “around 7%” in the first half of this year

The bank has a core inflation target of between 1% and 3%.

The RBNZ added that it acted to “minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future.”

The NZD rose to an intraday high of USD0.6902 after the announcement and traded around USD0.6850 in afternoon dealing Wednesday.

MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com

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