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New Zealand Monetary Policy August 2022

New Zealand: RBNZ tightens its stance again in August

At its 17 August meeting, the Reserve Bank of New Zealand (RBNZ) hiked the official cash rate to 3.00% from 2.50%, marking the seventh consecutive increase. The Bank’s decision was aimed at keeping inflation expectations anchored following recent increases in price pressures. Inflation soared to 7.3% in Q2 from 6.9% in Q1, logging the highest print since Q2 1990. Price pressures have been stoked by the impact of the war in Ukraine on commodity prices, resilient domestic demand amid a tight labor market, and supply disruptions stemming from China’s tough Covid-19 restrictions. The Bank thus raised rates to bring robust aggregate demand and constrained aggregate supply into balance in order to cool price pressures.

Looking forward, the Bank stated that it will “continue increasing the OCR until it is confident that monetary conditions are sufficient to maintain expectations of low inflation in the longer term”, in order to bring inflation within the 1.0–3.0% target band.

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

“We previously highlighted that the continued surge in wage inflation will remain a major concern, and that should keep the RBNZ on track to hike the OCR to 4.00% by the end of this year, as per our forecasts. Today’s RBNZ monetary policy decision and updated forecasts reinforce our view. Thereafter, we see the RBNZ on hold, as we are mindful that it will not want the economy to tip over into recession and for unemployment to rise sharply, as it aims to strike a balance with higher interest rates slowing the economy and inflation.”

The next monetary policy meeting is scheduled for 5 October.

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