In an unexpected move, RBNZ raised the Official Cash Rate by 50bps to 5.25%, doubling the anticipated 25bps hike. This bold step reflects the central bank’s concerns about persistently high inflation and employment levels.
The RBNZ statement highlighted that “inflation is still too high and persistent, and employment is beyond its maximum sustainable level.” Despite lower-than-expected economic activity in the December quarter, demand continues to outstrip supply, exerting further pressure on annual inflation.
The statement also noted that severe weather events in the North Island have contributed to higher prices for some goods and services. This increased near-term CPI inflation poses a risk of inflation expectations remaining above the target range.
In the meeting minutes, the Committee emphasized the need to continue raising the OCR to bring inflation back to the 1-3% target and fulfill their remit. They discussed both 25 and 50 basis point increases, ultimately opting for the more aggressive 50 basis point hike. This decision aims to maintain current lending rates for businesses and households while supporting an increase in retail deposit rates, countering the downward pressure on lending rates caused by falling wholesale interest rates since the February Statement.
