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RBNZ tightens its stance again in July

At its 13 July meeting, the Reserve Bank of New Zealand (RBNZ) hiked the official cash rate to 2.50% from 2.00%, marking the sixth consecutive increase. The Bank’s decision was aimed at keeping inflation expectations anchored following recent increases in price pressures: Inflation rose to a more than 30-year high in Q1. Price pressures have been stoked by the impact of the war in Ukraine on the supply of commodities, as well as by rising domestic demand, amid record low unemployment rates, loosened Covid-19 restrictions and considerable fiscal support. 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 to lift the OCR to a level where it is confident consumer price inflation will settle within the target range” of 1.0–3.0%, adding that “once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level”. The Bank stated that the path of the OCR projected in its recent May Monetary Policy Statement report would be “broadly” consistent with this goal. According to the report, rates are projected to end Q3 2022 at 2.70% and Q4 2022 at 3.40%, before peaking at 3.90% in Q2 2023 and declining from Q4 2024 onward.

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

“We had previously expected the RBNZ to tune back to the more usual pace of 25bps hikes from July onwards. Today’s 50bps move to a 2.50% policy rate would make the RBNZ ahead of most other central banks in lifting borrowing costs to combat rising inflation, but also seen taking the benchmark rate above a neutral level, which it deems to be 2%.”

The next monetary policy meeting is scheduled for 17 August.

FocusEconomics panelists are still assessing the latest developments and new forecasts will be released in our next publication on 19 July.

New Zealand - Money Data

2015   2016   2017   2018   2019  
Money (annual variation in %)14.2  2.1  -     -     -     

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New Zealand Money Chart


New Zealand Money
Note: Annual variation of M2 in %.
Source: Reserve Bank of New Zealand and FocusEconomics calculations.

New Zealand Facts

Value Change Date
Bond Yield1.671.20 %Dec 30
Exchange Rate0.67-1.69 %Jan 01

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