The Reserve Bank of New Zealand raised its benchmark rate by a quarter-point and signaled that the rate will remain restrictive for the foreseeable future.
The Monetary Policy Committee, led by RBNZ Governor Adrian Orr, decided to lift the Official Cash Rate by 25 basis points to 5.50 percent, its highest since December 2008. This was the twelfth straight hike.
The central bank has now raised the OCR by a cumulative 525 basis points since October 2021.
At the meeting, the MPC discussed the suitability of keeping the interest rate on hold at 5.25 percent or increasing it to 5.50 percent.
By a majority of five votes to two, the MPC agreed to increase the OCR by 25 basis points to 5.50 percent.
The MPC observed that monetary policy is having a moderating effect on demand at this point in time, while a 25 basis point increase in the OCR will increase confidence that inflation falls back to the midpoint of the target band.
Moreover, policymakers said the full effects of past tightening on the economy are yet to be seen.
Members also agreed that interest rates will need to remain at a restrictive level for the foreseeable future to ensure that inflation returns to the 1 percent to 3 percent target range while supporting maximum sustainable employment.
Although the Reserve Bank strongly signaled that the peak in the OCR is in, easing remains a long way off – towards the end of 2024, Westpac said.
Policymakers also noted that house prices continued to decline due to the current monetary policy tightening. In addition, credit growth for households eased.
Regarding migration, the MPC said there has been an increase in net inward migration but this increase is assumed to be temporary. The net inward migration provided some relief in the very tight labor market, members said.
On the Budget 2023, policymakers viewed that the overall fiscal policy will be contractionary on demand over the projected horizon.
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