Reserve Bank Raises OCR, Signals More Hikes Are In The Pipeline

The RBNZ reached consensus to raise the OCR by 25bp and reaffirmed their plans to tighten policy further amid mounting inflationary pressures.

• The MPC noted that "the current COVID-19-related restrictions have not materially changed the medium-term outlook for inflation and employment since the August Statement" and "capacity pressures remain evident in the economy."
• Policymakers judged that the economy will take a hit from Covid-19 restrictions imposed to contain the latest outbreak, but it will be considerably smaller than the impact of the first national lockdown. The Committee pointed to substantial uncertainty surrounding the implications of Covid-19 countermeasures on the economy as the pandemic evolves.
• The Reserve Bank contrasted the present challenges with those faced by policymakers last year. They observed that "demand shortfalls are less of an issue than the economy hitting capacity constraints," while pointing to "a risk that these become more persistent as we transition to a COVID-19 endemic state of the world."
• The Committee retained a sense of concern with the rate of consumer price growth as they warned that "rising capacity pressures would feed through into inflation." They "concluded that monetary policy stimulus will need to be reduced" going forward, "with future moves contingent on the medium-term outlook for inflation and employment."
• In terms of the inflation outlook, "headline CPI inflation is expected to increase above 4 percent in the near term" owing to "higher oil prices, rising transport costs and the impact of supply shortfalls." However, price growth is still expected to slow "towards the 2 percent midpoint over the medium term."
• The MPC maintained their assessment that housing prices remain unsustainable but said that a number of familiar factors mentioned in the August statement will help reign in property price inflation. Policymakers added that "rising mortgage interest rates, as monetary stimulus is reduced, would also constrain house prices to a more sustainable level."