RBNZ raises rate by 25 basis points to 1%

The The Reserve Bank of New Zealand has met market expectations on Wednesday by raising the cash rate by 25 basis points.raising it to 1%.

key notes

• The RBNZ says that more adjustment needed.
• As well agreed to begin phasing out bond holdings from the central bank under the large-scale asset purchase program, LSAP.
• Agree that it remains appropriate to continue reducing monetary stimulus.
• It says some near-term economic disruption is expected given the current growing health challenge from covid-19.
• Pressures on economic capacity have continued to mount.
• Say what headline consumer price inflation is well above the target range of the central bank, but will return towards the midpoint of 2% in the next few years.
• The RBNZ says the committee agreed that a further removal of monetary policy stimulus over time.
• It says employment is now above its maximum sustainable level.
• Says a wide range of economic indicators highlight that New Zealand’s economy continues to perform above its current potential.
• It says that sales of bond holdings, in addition to not investing the proceeds from maturities, are more consistent with fulfilling its mandate over time.
• Say what intends to start bond sales in July.

OCR projections

• OCR at 1.49% in June 2022 (previously 1.51%).
• OCR at 2.57% in March 2023 (previously 2.3%).
• Annual CPI Consumer Price Index at 3.2% in March 2023 (previous 2.9%).
• OCR at 2.84% in June 2023 (previously 2.4%).
• OCR at 3.35% in March 2025.

RBNZ Minutes

The committee also stated that it was willing to move OCR in larger increments if necessary during the next quarters.

OCR is expected to peak at a higher level than was assumed in the November statement.

Sales of the bank’s LSAP bond holdings may put some upward pressure on long-term interest rates.

Many members saw this as a finely balanced decision whether to increase OCR by 25 or 50 basis points.

The Committee agreed that higher interest rates were consistent with increasingly sustainable house prices.

The boost to growth from fiscal support is now waning and will fade.

The committee reached a consensus not to reinvest proceeds from upcoming LSAP bond maturities.

Why the RBNZ is important to investors

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing its decision on interest rates and the economic assessments that influenced its decision. The central bank offers clues about the economic outlook and future policy trajectory, which are highly relevant to the valuation of the NZD. Positive economic developments and optimistic outlook could lead the RBNZ to tighten policy by raising interest rates, which tend to be bullish on the NZD. Policy announcements are generally followed by Governor Adrian Orr’s press conference.