OCR Raised By 25bp In "Finely Balanced" Decision, Forecast To Rise More Aggressively

MPC members reached consensus to raise the OCR by 25bp in the wake of their first meeting of 2022, while many of them saw the decision between a 25bp and 50bp hike finely balanced. As expected by most RBNZ watchers, policymakers opted for a standard-sized rate rise and forecast a more aggressive future tightening path (both in terms of pace and the terminal OCR level).

• The decision to raise the OCR by 25bp falls in line with consensus forecast, although many sell-side desks flagged considerable risk of an outsized hike. The OIS strip was pricing a non-negligible chance of a bolder move, but a standard-sized move was widely considered the base-case scenario.
• Given the prevalent opinion that a regular hike was most likely, the RBNZ's comment that their decision was "finely balanced" may have been a bit of a hawkish surprise. In the justification of their decision, policymakers cited interest rate dynamics, Omicron uncertainty, and the planned rollback of the LSAP programme.
• Policymakers noted that they are planning to unwind the emergency asset purchase programme through both bond maturities and managed sales. The sales of nominal and inflation-indexed NZGBs at a rate of NZ$5bn per fiscal year is scheduled to commence in July.
• Note that the terminal level of the OCR has been shifted to 3.4% from 2.6% projected in November MPS. It now sits not only considerably above 2%, deemed by the Reserve Bank to be a "neutral" level, but also higher than expected by those who had ventured to make numerical guesstimates. Furthermore, the Committee "affirmed that it was willing to move the OCR in larger increments if required," effectively leaving larger OCR leaps on the table.