New Zealand Monetary Policy

New Zealand

Reserve Bank of New Zealand raises OCR again

At its 24 April monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) increased the official cash rate (OCR) from 2.75% to 3.00%. The interest rate had been resting at 2.50% since March 2011 before March of this year when the Bank increased the rate from 2.50% to 2.75%. The markets had broadly expected the Bank's most recent move.

In its statement, monetary authorities reaffirmed that New Zealand's economic expansion, “has considerable momentum,” and added that, “the extended period of low interest rates and strong growth in construction sector activity are supporting the recovery.” Moreover, the Bank underlined that the increasing net immigration has provided a boost to housing and private consumption. Regarding price developments, the Central Bank underlined that, “headline inflation is moderate, but inflationary pressures are increasing and are expected to continue doing so over the next two years.” However, the Central Bank also pointed out two aspects that may reduce the upward inflationary pressure. Firstly, it explicitly noted that, while overall export prices are still high, export prices of dairy products have dropped 20.0%. Secondly, unlike in the previous month's statement, monetary authorities recognized that the high exchange rate could lead to, “lower inflationary pressure.”

Although the RBNZ did not clearly signal another increase in June, monetary authorities did state that increases in the monetary policy rate are likely in the coming months.

Accordingly, the majority of FocusEconomics panelists expect the Bank to continue to raise the OCR this year, with an average forecast of 3.55%. For 2015, participants see interest rates ending the year at 4.19%.

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New Zealand Monetary Policy Chart

New Zealand Monetary Policy April 2014

Note: Official Cash Rate (OCR) in %.
Source: Reserve Bank of New Zealand.

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