RBNZ Stays Hawkish Course, Surprises With 50/75bp Rate Hike Debate

The RBNZ delivered the expected 50bp hike to the OCR and issued a statement reaffirming its hawkish resolve, cementing its position as one of the leaders of the global tightening campaign the day after the RBA slowed its pace of raising rates to 25bp.

• New Zealand's central bank deemed it appropriate to keep tightening monetary conditions "at pace" as "core consumer price inflation is too high and labour resources are scarce," echoing the opening lines of the August statement. The Committee reiterated that it "remains resolute in achieving the Monetary Policy Remit." Clear signs of continued hawkish resolve may have disappointed those looking for signs of an imminent flattening of the rate-hike trajectory.
• The summary record of the meeting revealed that members debated whether to raise the OCR by 50bp or 75bp, although virtually no sell-side analyst had pencilled in a triple-barrel hike, while the swaps market had been fully pricing a 50bp rate rise. The language of those comments did not intimate a strong preference for the realised 50bp move and was more balanced than in the August statement.
• Weaker exchange rate has become more of a concern. The Committee observed that "higher global interest rates and increased risk aversion in global markets have placed downward pressure on the New Zealand dollar." It recognised this dynamic as an "upside risk to inflation over the forecast horizon," while dropping the mention about positive consequences for exporters.
• The Committee underscored the resilience of domestic economy and showed little enthusiasm about the impact of monetary tightening delivered to date. They assessed that the reopening of borders will take time to affect the labour market, while tipping hat to lags in the wage setting process. The wage-price spiral worry resurfaced, with members pointing to the relationship between inflationary environment and potential changes in wage setting behaviour.