RBNZ Ups OCR By 25bps; Raises OCR Forecast Track To 2.6% From 2.1%
- Published on
- 24 Nov 2021, 12:45 PM
By Sophia Rodrigues
(Sydney, November 24, 2021)—The Reserve Bank of New Zealand raised the official cash rate for the second meeting in a row, taking the rate to 0.75%, saying higher interest rates are needed to maintain price stability and maximum sustainable employment.
At the decision statement published Wednesday the RBNZ said the OCR remains its preferred tool to remove monetary stimulus.
Some highlights from the Statement:
--The RBNZ raised the OCR track to 2.6% from 2.1% at the August Monetary Policy statement
--CPI inflation is expected to rise to 5.7% (previous 4.1%) in Q4 and in Q1 of 2022, and reduce to 3.3% (previous 2.2%) by December 2022
-- The RBNZ expects to gradually manage LSAP bond holdings down, in a way that maintains the smooth functioning of financial markets. More details on how bond holdings will be reduced will be provided early next year.
--The RBNZ expects the OCR would need to be progressively increased and, conditional on the economy evolving as expected, the OCR would likely need to be raised above its neutral rate.
--The RBNZ said there was a case for a more rapid removal of monetary stimulus but took into account uncertainty about the resilience of consumer spending and business investment as the country adapts to living with the COVID-19 virus in the community. The RBNZ also noted that increases in interest rates to households and businesses had already tightened monetary conditions.
-- The RBNZ discussed funding for lending programme as a toolkit but noted that banks had already factored commitment from this source into its funding plans. Also, any adjustment to this would not only impact banks but undermine future effectiveness if a similar programme is required in the future.
--The RBNZ reiterated its estimate of a nominal neutral interest rate remains at around 2%
-- The RBNZ expects employment to remain above its maximum sustainable level (MSE) over the projection horizon, but to return towards MSE over the projection as capacity pressures ease.