New Zealand: RBNZ tightens its stance again and announces winding down of quantitative easing in February
At its 23 February meeting, the Reserve Bank of New Zealand (RBNZ) decided to hike the official cash rate to 1.00% from 0.75%, marking the third consecutive increase. The move was widely expected by market analysts. Moreover, the Bank revealed plans to gradually reduce bond holdings under its Large Scale Asset Purchase (LSAP) program. The Bank’s decision came amid mounting inflationary pressures and rising economic capacity pressure. Inflation jumped further above the Bank’s 2.0% target in the last quarter of 2021. Furthermore, the Bank stated that employment is now above its maximum sustainable level and that the economy is seemingly growing above its potential, which it saw as further cause to reduce its stimulus. Moreover, as domestic vaccination rates rise and restrictions are eased, activity looks set to keep growing robustly ahead.
Looking forward, the Bank hinted at further tightening, to “maintain price stability and support maximum sustainable employment”. It projects inflation to climb above 6.0% in the near term to then decline only gradually, before settling at the 2.0% midpoint of the target band in 2025.
The next monetary policy meeting is scheduled for 13 April.