At its July 13 monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) announced a 50 bps increase to the Official Cash Rate (OCR), raising it from 2% to 2.5%, as widely expected.
RBNZ said: “The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment.”
Additional takeaways
Remains appropriate to continue to tighten policy.
To tighten conditions at pace to maintain price stability and support maximum sustainable employment.
: committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.
Committee agreed to continue to lift the OCR to a level where it is confident consumer price inflation will settle within the target range.
Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.
Spending and investment demand continues to outstrip supply capacity, with a broad range of indicators highlighting pervasive inflation pressures.
Spending and investment demand continues to outstrip supply capacity, with a broad range of indicators highlighting pervasive inflation pressures.
Committee acknowledged there is a near-term upside risk to consumer price inflation and emerging medium-term downside risks to economic activity.
Employment remains above its maximum sustainable level and the reserve bank’s core inflation measures are around 4 percent.
A majority of the economists forecast the RBNZ raising rates by 50 basis points to 2.50% at its July 13 meeting while expecting the OCR to reach 3.50% or higher by the end of this year.
Market reaction
With an initial reaction to the RBNZ announcement, NZD/USD remains unchanged at around 0.6130. At the time of writing, the kiwi drops 0.33% to 0.6115, in a delayed response to the outcome.
Why the RBNZ rate decision matters to traders?
The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by Governor Adrian Orr’s press conference.
