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New Zealand Monetary Policy November 2022

New Zealand: RBNZ deliver higher-than-expected hike in November

At its 23 November meeting, the Reserve Bank of New Zealand (RBNZ) hiked the official cash rate (OCR) to 4.25% from 3.50%, marking the ninth consecutive increase. The hike, which surprised the market on the upside, represented the largest increase since the introduction of the OCR in 1999 and takes the OCR to its highest level since 2008.

The Banks decision came amid elevated price pressures, rising inflation expectations and a tight labor market. The RBNZ raised rates in an effort to cool aggregate demand and bring it back into balance with aggregate supply and thus cool price pressures. Signs of excessive demand pressures are evident from broad-based labor shortages resulting in strong wage growth, with a recovering tourism sector also contributing to this.

Looking forward, the Bank stated that “monetary conditions need to continue to tighten further [until] there is sufficient restraint on spending”, in order to bring inflation within the 1.0–3.0% target band.

Commenting on the release, Sue Ann Lee, economist at UOB, stated:

“We had previously highlighted that the risks remain skewed towards more rate hikes and thus an OCR higher than our 4.0% forecast. We now think that rates will peak closer to 5.0%, before the RBNZ pauses in the current tightening cycle.”

The next monetary policy meeting is scheduled for 22 February.

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