OCR Raised By 50bp, RBNZ Reaffirms Inflation-Fighting Bias

The Reserve Bank of New Zealand raised the OCR by 50bp to 3.0% as expected by virtually all economists while resetting the terminal level of the OCR track to a higher level.

• The Committee said "it remains appropriate to continue to tighten monetary conditions at pace" to meet the policy objectives, as "core consumer price inflation remains too high and labour resources remain scarce." Members cited evidence of broad-based domestic pricing pressures from a "range of indicators."
• The RBNZ tipped hat to positive developments in its fight against runaway price growth, pointing to the expected easing of headline inflation rate in the near term and a decline in inflation expectations. But it also poured cold water on optimism, noting that core inflation has increased and the risk of a greater change in the wage/price setting behaviour remains.
• While the 50bp OCR hike had been deemed a foregone conclusion well ahead of the meeting, the focus was on the OCR track. The RBNZ raised its peak to 4.10% from 3.95% forecast in the May MPS, effectively setting the stage for a slightly steeper tightening of monetary conditions.
• The Committee showed little concern about the rapid pace of cooling in the housing market. Property prices "are expected to keep falling over the coming year towards more sustainable levels."
• Interestingly, the summary record of the meeting mentioned discussions on the neutral OCR level, previously believed to be around 2%. The Committee took note of an increase in market-based estimates, noting that the Reserve Bank's staff will review their own estimates.
• All in all, the Reserve Bank reaffirmed its bias towards containing price pressures despite weaker global growth outlook and some domestic economic headwinds. While the minutes mentioned discussions "whether more rapid [OCR] increases" were needed, any talk of more gradual tightening was conspicuously absent.