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MNI STATE OF PLAY: RBNZ To Hike In 25bps Increments-Governor

MNI (Sydney)
SYDNEY (MNI)

Reserve Bank of New Zealand Governor Adrian Orr says the central bank plans to increase its Official Cash Rate in "steady steps of 25 basis points" in a tightening cycle which would see rates reach 2% in late 2022 and hit 2.5% in September 2023.

Speaking at a press conference after Wednesday's interest rate decision, where the RBNZ increased rates by 25bps to 0.75%, Orr said the bank had considered a 50bps hike on Wednesday, but went with 25bps as "putting our best food forward, with the balance of risks as we see it."

Orr stressed that his view of steady 25bps incremental increases was based on current economic information, but could be liable to change.

PANDEMIC RESTRICTIONS LIFTED

He said a NZ government decision also on Wednesday to lift pandemic restrictions, announced only hours before the RBNZ meeting, did not change the bank's outlook.

Earlier, the RBNZ's Monetary Policy Committee cited an expectation for headline inflation to measure above 5% in the near term and "unsustainable" levels for house prices in its decision. The Monetary Policy Statement, also published on Wednesday, includes a forecast track for the OCR which showed official rates would break through the 2% level by December next year, and reach 2.5% by September 2023.

Forecast inflation by September 2023 would be at 0.8% per quarter, with quarterly GDP growth at 0.3% after peaking at 5.8% in the current quarter.

The RBNZ also confirmed it would sell down its portfolio of NZ government bonds purchased under its Large-Scale Asset Purchase (LSAP) programme, with a plan to be released early next year.

"The plan is to gradually manage down our LSAP holdings and that plan will outline how we go about doing that," Assistant Governor Christian Hawkesby told the press conference. Governor Orr said the bond sales would be managed "as part of the effectiveness of monetary policy."

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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