New Zealand: RBNZ delivers larger-than-expected hike in April
At its 5 April meeting, the Reserve Bank of New Zealand (RBNZ) hiked the official cash rate (OCR) to 5.25% from 4.75%, marking the eleventh consecutive increase. The hike, which surprised markets on the upside, takes the OCR to its highest level since 2007.
The Bank’s decision came amid stubbornly high price pressures, above-target inflation expectations and a tight labor market. Moreover, a recent cyclone, Gabrielle, has disrupted production, translating into higher prices for some goods and services. The RBNZ raised rates in an effort to limit aggregate demand and thus cool price pressures. Meanwhile, the Bank expects faster-than-projected near-term inflation to add upside risk through higher inflation expectations.
Looking forward, the Bank said in a statement that “monetary conditions need to tighten further” in order to bring inflation within the 1.0–3.0% target band and stressed that “the direction of future monetary policy” would be determined by the extent of the decline in core inflation and inflation expectations.
Commenting on the release, Lee Sue Ann, economist at UOB, stated:
“At this juncture, given the huge amount of uncertainty and how little the RBNZ has given in terms of what to expect at the next monetary policy decision on 24 May, we are keeping our OCR forecast at 5.25% for the rest of this year.”
The next monetary policy meeting is scheduled for 24 May.