The Reserve Bank of New Zealand has today raised the Official Cash Rate by 50 basis points to 3%. It is the RBNZ’s fourth straight 50bp hike in a row, in a tightening cycle that started back in October.
The move was widely expected by economists. However, providing a hawkish surprise, the RBNZ’s OCR track was revised higher by 30bp to 3.7% by the end of the year. The terminal rate was revised higher to 4.10% vs 3.95% and the timing for the terminal rate to be reached, accelerated to Q2 2023 vs Q3 2022.
Throwing further hawkish fuel on the fire, the RBNZ added a new sentence to the statement's first paragraph that sums up the dilemma the back is faced with “Core consumer price inflation remains too high and labour resources remain scarce.”
The statement noted that inflation pressures had broadened, and measures of core inflation have increased. As a result, inflation is not expected to return “to the Committee’s 1-3 percent target range by the middle of 2024,”
The RBNZ noted that higher interest rates were putting pressure on household spending and house prices which is of course what higher rates are expected to do.
“House prices have steadily dropped from high levels since November last year and are expected to keep falling over the coming year towards more sustainable levels.”
However, the RBNZ’s focus remains on inflation, and until the RBNZ sees firm evidence that inflation has turned lower, the RBNZ's rate hiking cycle will continue.
“Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit.”
Following the announcement, the NZD/USD rallied 40 pts from .6338/40 to .6383 before falling back to where it was going into the announcement.
There is a strong layer of medium-term support in the .6300/.6200c region, and we expect this level to hold if tested, looking for rotation higher to the June .6576 high.
Source Tradingview. The figures stated are as of August 17th ,2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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