Fresh comments from senior Reserve Bank of New Zealand officials today reinforced the hawkish message delivered at this week’s policy meeting, strengthening the case that interest rate hikes are approaching and putting the July meeting firmly in play. While the RBNZ left the Official Cash Rate unchanged at 2.25%, the decision was split 3-3, with Governor Anna Breman casting the deciding vote to hold. The subsequent commentary suggests policymakers are no longer debating whether rates need to rise, but rather when the tightening cycle should resume.
Among the most hawkish voices was Monetary Policy Committee member Hayley Gourley, who voted for an immediate rate increase. Gourley told Reuters that the policy path points to change “sooner rather than later” and argued that acting early would provide the best opportunity to keep inflation expectations anchored.
“My view was that by increasing sooner rather than later, we had the best opportunity to keep inflation expectations anchored and therefore minimize the negative impact inflation may have for the economy,” Gourley said. She also stressed that incoming data over the next five to six weeks would determine “the speed and the magnitude of change,” effectively confirming that July is a live meeting.
Even officials who supported holding rates signaled that higher borrowing costs are likely ahead. Assistant Governor Karen Silk acknowledged that higher oil prices from the Middle East conflict will inevitably flow through to broader inflation pressures. “We can’t have the oil price shock that we’ve had without it having some flow through further down the line,” Silk said, adding that “you do need to have an increasing OCR to lean against that.” Importantly, she rejected the idea that policymakers should simply wait for more quarterly inflation data before acting, stating that “we have always got to be forward looking.”
Governor Anna Breman reinforced the shift in guidance, stating that “the OCR is likely to increase sooner and by more than previously signalled.” Taken together, the comments suggest the RBNZ is increasingly concerned that the energy shock could become embedded in inflation expectations even as economic growth slows. While policymakers remain divided on timing, there now appears to be broad agreement that higher rates will be required.
