RBNZ Ups OCR 50bps to 2.0%

By Sophia Rodrigues

Published On 25 May 2022 , 12:15 PM

The Reserve Bank of New Zealand raised official cash rate by 50bps to 2.0%, as widely expected and issued hawkish projection pointing to around 140bps of more rate rises this year.

The latest increase takes the policy rate to 2.0%, and the RBNZ is now projecting OCR of 3.4% by this year-end, up from just 2.2% in the February Monetary Policy Statement.

The RBNZ’s projection is exactly in line with money market’s expectation for OCR to reach 3.4% by the November board meeting.

The RBNZ said it will “maintain its approach of briskly lifting the OCR until convinced that monetary conditions were sufficient to constrain inflation expectations and bring consumer price inflation to within the target range.”

Stabilising inflation is its priority, the RBNZ said, adding that “stabilising inflation expectations will be a key indicator that the current monetary policy strategy is working.”

The RBNZ lifted its projection for peak OCR to 3.9% from 3.4% in February and, more importantly, expects to reach this level by June 2023.

The RBNZ said the forecast for higher interest rates reflects a stronger starting point for capacity pressures than originally assumed, including even longer delays in making and delivering goods than anticipated.

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