The RBNZ delivered an unexpectedly large 50bp hike in the OCR, and a further 25bp rise seems on the cards for the May Monetary Policy Statement.
RBNZ Monetary Policy Review, April 2023
The Reserve Bank surprised by raising the OCR by 50 basis points to 5.25% at today’s review, rather than the 25bp that most were expecting.
In aggregate the RBNZ sees the overall profile for inflation pressures as relatively unchanged since February, when its projections showed that the OCR might need to move to 5.5% over the first half of 2023.
The RBNZ acknowledged the weaker starting point for GDP. But the downward impact this would have on their projections was balanced by upward shocks to prices in the wake of the recent flooding and Cyclone Gabrielle. The RBNZ remains concerned about the potential for inflation expectations to be unanchored by the currently high level of core and headline inflation.
The RBNZ acknowledged the recent financial stability pressures offshore, but did not see these as having any significant impact on financial conditions or financial stability in New Zealand. In any case the RBNZ affirmed that they have tools other than the OCR available to deal with financial stability pressures should they arise.
The bottom line is that the RBNZ seems intent on getting the OCR to the level they saw as sufficiently contractionary back in February – that is, an OCR of 5.50%. Any movements in the OCR beyond that point will be data-dependent, but it seems likely the base case will be for a further 25bp increase at the May Monetary Policy Statement.
Based on the tone of this release, it’s likely the RBNZ will retain a tightening bias that will be data-dependent and contingent on the economy and inflation pressures evolving as required to bring inflation expeditiously back towards the 1-3% target range.