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New Zealand Monetary Policy May 2023

New Zealand: RBNZ hikes rate in May; signals end of tightening cycle

At its 24 May meeting, the Reserve Bank of New Zealand (RBNZ) hiked the official cash rate (OCR) to 5.50% from 5.25%, marking the twelfth consecutive increase. The hike, which was expected by markets, was supported by five out of the seven members of the committee, with the other two voting to raise the OBC by 50 basis points.

The Bank’s decision came amid softening price pressures and easing labor shortages, as previous monetary policy tightening is already cooling demand dynamics. The Bank expects net migration to increase to pre-Covid trend levels over the coming quarters, but it deemed the impact of this on inflation as uncertain. The RBNZ now projects the OCR to peak at 5.50%, which implies the end of the tightening cycle. Meanwhile, the Bank expects inflation to return to its 1.0-3.0% target band in Q3 2024.

Looking forward, the Bank said in a statement that it “is confident that, with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range”.

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

“Overall, we expect the RBNZ to retain a tightening bias, keeping the door open for a further rate hike if needed. At this juncture, we are keeping our OCR forecast at 5.50% for the rest of this year, while bearing in mind that the next monetary policy meeting will be on 12 July, and a lot can still change from now till then.”

The next monetary policy meeting is scheduled for 12 July.

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