Reserve Bank Raises OCR By 50bp, Inflation Worry Evident

The RBNZ decided to front-load monetary policy tightening and raised the Overnight Cash Rate by 50bp to contain runaway consumer price inflation.

• Concern about price pressures was evident as policymakers pointed to core inflation measures being "at or above 3 percent" and flagged the need to "head off rising inflation expectations," as domestic inflation is fuelled by "both international and domestic factors."
• The MPC delivered the first half-point rate hike since 2000 despite taking note of dampened consumer confidence, tighter financial conditions, falling house prices, as well as uncertainty created by Covid-19 and war in Ukraine, which is testament to price stability becoming even more of a priority.
• The Committee said that "inflation is expected to peak around 7 percent in the first half of 2022, effectively upgrading their inflation outlook versus the February Monetary Policy Statement.
• Reminder that it was a non-MPS monetary policy review, which means that there will be no formal update to economic forecasts or press conference.
• The decision to bring the OCR to 1.50% was taken after deliberations on the optimal trajectory of tightening, with policymakers concluding that a bolder move now will be more effective and "provides more policy flexibility ahead," which is consistent with their least regrets approach.
• The language around the MPC's decision making process seemed to suggest that an outsized hike now reduces the chance of another half-point leap in the policy rate. The minutes noted that members increased the OCR by more "now, rather than later" - an unnecessary yet telling remark.