RBNZ Raises OCR By 25bps To 50bps; More Hikes Expected Over Time

By Sophia Rodrigues

(Sydney, October 6, 2021)—The Reserve Bank of New Zealand raised the official cash rate by 25 basis points to 0.50% and signalled more rate hikes can be expected over time as it strives to maintain low inflation and support maximum sustainable employment.

The decision is a reflection of RBNZ’s view that capacity pressures on the economy remain and the restrictions related to Covid-19 have not materially changed the medium-term outlook for inflation and employment.

“Capacity pressures remain evident in the economy, particularly in the labour market. A broad range of economic indicators highlight that the New Zealand economy has been performing strongly in aggregate,” the RBNZ said.

The RBNZ said the headline consumer price index inflation is expected to increase above 4% in the near term before returning towards the 2% midpoint over the medium term.

But there is a risk that immediate relative price shocks would lead to more generalized price rises.

On the global economy, the RBNZ said activity has continues to recover and while uncertainty remains elevated, cost pressures are becoming more persistent and “some central banks have started the process of reducing monetary policy stimulus.”

At the same time, it acknowledged there will be longer-term implications for economic activity both domestically and internationally from the pandemic.

--Contact: Sophia@centralbankintel.com