OCR Lifted By 50bp, Statement Provides No Curveballs

The Reserve Bank of New Zealand raised the Overnight Cash Rate by 50bp, in line with virtually unanimous consensus call, noting that it "remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment."

• The Committee noted that recent developments affecting the outlook for inflation and employment were broadly in line with the assessment at the May Monetary Policy Statement.
• The announcement conveyed a deeper sense of concern with global economic headwinds but members judged that the outlook weakened "broadly as anticipated." Notably, the Committee added a line about "emerging medium-term downside risks to economic activity."
• Expectedly, the RBNZ continued to communicate discomfort with acute price pressures and unsustainable levels of employment. The Bank noted that its core inflation measures are "around 4 percent" (vs. "above 3 percent" flagged in May), with a near-term upside risk to consumer price inflation.
• The minutes flagged uncertainty about the reaction of households and firms to a tightening of monetary conditions under the current circumstances, with members vowing to monitor these responses. This may put a bit more emphasis on incoming survey data, with sentiment among consumers and businesses hitting very low levels.
• Policymakers reaffirmed their intention to "briskly" lift the OCR until they are confident of bringing inflation expectations and consumer price inflation under control. The "stitch in time" strategy still stands.
• The Committee said it remains "broadly comfortable" with the OCR track included in the May MPS, which sees the terminal level of the key policy rate at around 4%. Many sell-side desks have been casting doubt on whether the RBNZ will indeed go that high.
• The next monetary policy review is slated for August 17. It will be released alongside a full Monetary Policy Statement and followed by a press conference with Governor Orr.