RBNZ hikes cash rate by 50bp, as widely expected

Reserve Bank of New Zealand monetary policy decision 22 February 2023.

A +50bp cash rate hike takes the OCR from 4.25% to 4.75% as the Bank battles to rein in inflation .

RBNZ sees official cash rate at 5.14% in June 2023 (prior 5.41%)

• At 5.5% in March
  2024 (prior 5.5%)
• Sees official cash
  rate at 5.5% in June 2024 (prior 5.5%)
• Sees official cash
  rate at 4.05% in march 2026
• Sees NZD TWI around
  71.5 in March 2024 (prior 70.0)
• Sees annual cpi 4.2%
  by March 2024 (prior 3.8%)

—

Committee remains resolute in achieving the monetary policy

• Committee members
  agreed that monetary conditions needed to continue to tighten further
• While there are
  early signs of price pressure easing, core consumer price inflation
  remains too high
• Employment is still
  beyond its maximum sustainable level, and near-term inflation
  expectations remain elevated.
• Committee will look
  through short-term output variations and direct price effects of
  cyclone damage
• While there are
  early signs of demand easing it continues to outpace supply, as
  reflected in strong domestic inflation

—

From the RBNZ minutes:

• Increases of 50 and
  75 basis points were considered
• Inflation is
  currently too high and employment is beyond its maximum sustainable
  level
• Committee agreed it
  must continue to increase the official cash rate (ocr) to return
  inflation to target and to fulfil its remit
• Balance of risks
  around inflation remain skewed to the upside
• The extent of this
  risk had moderated somewhat since November
• Committee members
  discussed the effects of Cyclone Gabrielle and other recent severe
  weather events
• Members noted the
  rapid pace and extent of tightening to date implies monetary policy
  is now contractionary
• Economic impacts
  discussed by the committee from weather events included the immediate
  upward pressure on some prices
• Committee agreed
  that the medium-term impacts of the severe weather events do not
  materially alter the outlook for monetary policy
• Committee agreed
  that housing market related activity was a downside risk
• As debt servicing
  costs rise, spending decisions for many households will become
  increasingly constrained
• As in the November
  statement, the central projections show a decline in GDP this year
• Resilience of
  household balance sheets is seen as a downside risk

Background to this:

• Reserve Bank of New Zealand rate decision on Wednesday. What levels are in play for NZDUSD