RBNZ raises the Official Cash Rate by a record 75bps to 4.25% as widely expected. The central bank maintained that “monetary conditions needed to continue to tighten further, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range.”
During the meeting, increases of 50, 75 and 100bps were considered. But members agreed that “a larger increase in the OCR was appropriate, given the resilience of domestic spending, and the higher and more persistent actual and expected inflation outcomes.”
But on the “balances of risks”, a 75bps hike was “appropriate at this meeting”. Members highlights that “the cumulative tightening of monetary conditions delivered to date continues to pass through to the economy via the lagged transmission to effective retail interest rates.”
In the new forecasts, annual inflation is projected to rise further to 7.5% in Q4 and Q1, then stay above 5% throughout 2023. Inflation would then slowly drop back to 2.9% in Q3, 2024. Quarterly GDP is projected to contract from Q2 2023 to Q1 2024, turn flat in Q2 and Q3 2024, before returning to slight growth. OCR will continue to rise and peak at 5.5% in Q3 2023, before turning down in second half of 2024.
