RBNZ Monetary Policy Review, April 2022
- The Reserve Bank raised the OCR by 50 basis points to 1.50%.
- The increase was larger than the majority of economists (including us) were expecting, but was more in line with what financial markets had priced in.
- The RBNZ reiterated that its key concern is that the current spike in inflation doesn’t become embedded in longer-term price-setting behaviour.
- The Committee noted that the current level of the OCR is still stimulatory, and that further increases will be needed to achieve its mandate.
- However, it indicated that its view on the peak in the OCR is unchanged compared to the February Monetary Policy Statement.
- As such, today’s decision was described as earlier, rather than more, monetary tightening.
Implications
While the RBNZ’s decision was more in line with market pricing on the day, it emphasised that there is a key difference regarding the OCR outlook over the longer term. In recent weeks, financial markets have pushed towards pricing in an ever-higher peak in the OCR for this cycle, now getting towards 4%. In contrast, the RBNZ viewed today’s decision as a “stitch in time saves nine” approach: hiking interest rates earlier will reduce the risk of having to go even higher in the long term. The reasoning is sound; we’re just left wondering why it didn’t hold sway at the February review, with much the same information available.
The RBNZ statement was very much focused on explaining today’s decision rather than providing a signal for upcoming reviews. That said, there was nothing in the statement that explicitly argued against a follow-up 50 basis point hike in May, so we wouldn’t be surprised if the market moves to fully price that in.
We will review our OCR forecasts and update them in our bulletin later today.
