RBNZ Monetary Policy Statement Feb 2023

The Reserve Bank raised the official Cash Rate by 50 basis points to 4.75%, and maintained its projection of a 5.5% peak in the coming months. There was almost no change to the projected OCR track compared to the November policy statement. The OCR is still expected to peak at 5.5% in the middle of this year, and to fall only gradually from late next year.

We had expected a modest lowering of the OCR track, given that recent inflation outcome haven’t quite lived up to the very strong assumptions that the RBNZ had made. The options that the Monetary Policy Committee considered this time were between a 50bp and a 75bp increase. The Committee went for the smaller move, noting that the upside risks to inflation had lessened since the November review.

The Committee judged that the effects of the cyclone did not materially alter the outlook for monetary policy over the medium term. However, it is still early days in terms of assessing the scale of its impact, particularly in terms of the amount of rebuilding work it will generate.

The Committee’s current assessment is that over coming weeks, prices for some goods are likely to spike and activity will be weaker than previously expected. Export revenues will be negatively impacted. Monetary policy is set with a medium-term focus, and the committee will look through these short-term output variations and direct price effects.

There are early signs of demand easing it continues to outpace supply, as reflected in strong domestic inflation. The Committee agreed that monetary conditions need to tighten further, as indicated in the November Statement, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1 to 3% per annum target range. The Committee remains determined to achieve its Monetary Policy Remit.