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MNI STATE OF PLAY: RBNZ Eyes Rate Hike Surge To Whip Inflation

MNI (Sydney)

Reserve Bank of New Zealand Governor Adrian Orr said monetary policy is back to a “normal” after the pandemic emergency, and he plans to let rate hikes guide a hawkish response to an overheated domestic economy even as the central bank also slowly trims its bond portfolio.

The RBNZ on Wednesday hiked its Official Cash Rate by 25bps to 1.0%, as expected, but also outlined a track for the OCR to break through the 3% barrier in September next year before increasing to 3.4% by September 2024.

The track has rates at 2.2% by the end of this year, see: MNI BRIEF: RBNZ Sees Rates At 2.2% by December.


This forecast is significantly higher than the previous RBNZ Monetary Policy Statement, which had rates at 2.5% in September 2023 and 2.6% by September 2024.

Driving the RBNZ outlook is an inflation rate of 5.9%, which is well out of the bank’s 1% to 3% target range, and a capacity constrained labour market with unemployment at a three-decade low of 3.2%.

The RBNZ sees much of the inflation as temporary and that it will move down to around 2.5% in the coming years, but still sees the immediate need to reduce monetary stimulus.

However, Orr also said that tensions in Ukraine would be a factor in global inflation, and the tenor of any conflict could impact international energy prices.


Also, the RBNZ announced it would begin to unwind the NZD54 billion portfolio of government bonds acquired under the Large-Scale Asset Purchase Programme through selling bonds back to the NZ Treasury and letting other lines mature. The RBNZ sees its portfolio falling to under NZD10 billion by 2026.

Orr, however, does not see the bond sales as a key part of the tightening policy, driven by the OCR hikes as the main tool.

He noted that the RBNZ rate hikes, which began last October, had already had an impact on the housing market as lenders raised commercial rates. NZ house prices surged 27% last year but the RBNZ is now forecasting a 9% decline in the period to mid-2024.

MNI Sydney Bureau | +61-405-322-399 |
MNI Sydney Bureau | +61-405-322-399 |

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