First Impressions: RBNZ Monetary Policy Review

The RBNZ raised the policy rate by an unexpectedly large 50 basis points, and another 25 basis point hike appears to be scheduled for the May Monetary Policy Statement.

RBNZ Monetary Policy Report, April 2023

The Reserve Bank surprisingly raised the OCR by 50 basis points to 5.25% at today’s review, rather than 25 basis points as most expected.

Overall, the RBNZ sees the overall profile for inflation pressures as relatively unchanged since February, when its projections showed that the OCR should rise to 5.5% in the first half of 2023.

The RBNZ acknowledged the weaker starting point for GDP. However, the downward impact on its projections was offset by upward shocks to prices from the recent floods and Cyclone Gabrielle. The RBNZ remains concerned about the potential for inflation expectations to be unanchored by the current high levels of core and headline inflation.

The RBNZ acknowledged that financial stability abroad has recently come under pressure, but did not see this as having a significant impact on financial conditions or financial stability in New Zealand. In any case, the RBNZ reiterated that it had tools other than the OCR to deal with financial stability pressures should they arise.

The bottom line is that the RBNZ appears intent on moving the OCR to the level it deemed sufficiently contractionary back in February, i.e., an OCR of 5.50%. Any moves in the OCR beyond that will depend on the data, but it seems likely that the basis for another 25 basis point increase will be at the May Monetary Policy Statement.