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New Zealand Monetary Policy April 2022

New Zealand: RBNZ tightens its stance again in April

At its 13 April meeting, the Reserve Bank of New Zealand (RBNZ) decided to hike the official cash rate to 1.50% from 1.00%, marking the fourth consecutive increase. The size of the increase surprised markets on the upside. The Bank’s decision was aimed at reducing risks of rising inflation expectations while providing policy flexibility ahead. Russia’s invasion of Ukraine has intensified upwards inflationary pressures by worsening supply disruptions and pushing fuel and commodity prices up strongly. That said, the domestic economy continues to show strength amid a high vaccination rate, with the Bank stating that it sees employment as above its maximum sustainable level amid ongoing labor shortages.

Looking forward, the Bank stated that future decisions will hinge on “ensuring that current high consumer price inflation does not become embedded into longer-term inflation expectations”. Thus, long-term inflation expectations remaining elevated or continuing to rise ahead will increase pressure on the Bank to hike rates further.

The next monetary policy meeting is scheduled for 25 May.

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