New Zealand Monetary Policy

New Zealand

New Zealand: Reserve Bank of New Zealand makes third-consecutive increase to OCR

June 13, 2014

At its 12 June monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) increased the official cash rate (OCR) from 3.00% to 3.25%. The Banks’s most recent move represents the third consecutive rate hike, a decision which the markets had broadly expected.

In its statement, monetary authorities reaffirmed that New Zealand’s economic expansion, “has considerable momentum,” and added that, “[g]lobal financial conditions remain very accommodative and are reflected in low long-term interest rates and narrow risk spreads.” The Bank also stated that it expects economic growth among New Zealand’s trading partners to improve and global inflation to stay low. Moreover, the Bank underlined that the pick-up in the domestic construction sector as well as increasing net immigration have provided a boost to housing and private consumption. Regarding price developments, the Central Bank underlined that, “[h]eadline inflation remains moderate,” but that, “[i]nflationary pressures are expected to increase.” The Bank expects inflationary pressures to particularly increase in the non-tradable sector, especially in construction. However, the Central Bank also pointed out that export and housing prices have moderated over recent months.

Although the RBNZ did not explicitly signal another increase in July, it left options open for a further rate hike by stating that, “[t]he speed and extent to which the OCR will need to rise will depend on future economic and financial data, and its implications for inflationary pressures.”

Accordingly, the majority of FocusEconomics panelists expect the Bank to continue raising the OCR this year, with an average forecast of 3.55%. For 2015, participants see interest rates ending the year at 4.19%.

Author: Teresa Kersting, Economist

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New Zealand Monetary Policy Chart

New Zealand Monetary Policy June 2014

Note: Official Cash Rate (OCR) in %.
Source: Reserve Bank of New Zealand.

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