Before the Monetary Policy Review announcement today there was consensus amongst commentators that the Official Cash Rate was “sure to rise” with only the quantum — 25 or 50 basis points being debated. Those urging a more aggressive hike were concerned the Reserve Bank was behind the inflation curve with inflation likely to get worse before it gets better. They got their wish as the OCR was increased to 1.5%, a level not seen since 2019.
Leading the hawkish charge was the ANZ who argued for a 0.5% rise on the basis that the sooner the RBNZ moved to aggressively rein in inflation the lower the cost would be on the economy. Singapore-based Capital Economics also predicted a 50 basis point rise today and again in the 25th May Monetary Policy Statement. The ASB and BNZ leaned towards a more muted 25 basis point rise, while acknowledging it was a “close call”. The RBNZ’s February monetary policy statement indicated the neutral rate for the OCR — the rate at which the OCR neither stimulates or suppresses growth was around 2% to 2.5%.
Annual inflation was 5.9% in the December quarter, the highest it has been in 30 years. The expectation is for this figure to rise to around 7% in the March quarter. Inflation has been running rampant due to ongoing supply chain issues, persistently high commodity prices, labour shortages and high oil prices exacerbated by the Russian/Ukraine war.
At the same time there are swirling headwinds domestically and internationally as global growth slows and in New Zealand clear signs that the housing market is slowing from its recent highs.
