News

OCR up 50pts: Here is what the bank said

Why the RBNZ hiked the OCR 50 basis points.

Wednesday, May 25th 2022

The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 2%. The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment.

The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3% target range.

Consistent with the economic outlook and risks ahead, monetary conditions need to act as a constraint on demand until there is a better match with New Zealand’s productive capacity. A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment.

The level of global economic activity is generating rising inflation pressures, exacerbated by ongoing supply disruptions driven by both COVID-19 persistence and the Russian invasion of Ukraine. The latter continues to cause very high prices for food and energy commodities.

The pace of global economic growth is slowing. The broad-based tightening in global monetary and financial conditions is acting to slow spending growth, accentuated by the high costs of basic food and energy staples. European geopolitical uncertainty is also weighing heavily on business confidence and investment intentions worldwide. Likewise, Covid-19 restrictions in significant regions of China are exacerbating supply chain disruptions and adding cost and complexity to trade.

In New Zealand, underlying strength remains in the economy, supported by a strong labour market, sound household balance sheets, continued fiscal support, and a strong terms of trade. The reduction in Covid-19 health-related restrictions is also enabling increased economic activity, including hospitality and tourism.

However, headwinds are strong. Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence. Asset prices, in particular house prices, have also declined, reflecting in part higher mortgage interest rates and increased supply of housing.

On balance, a broad range of indicators highlight that productive capacity constraints and ongoing inflation pressures remain prevalent. Employment remains above its maximum sustainable level, with labour shortages now the major constraint on production. The Reserve Bank’s core inflation measures are above 3 percent.

The Committee agreed to continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target range. The Committee viewed the projected path of the OCR as consistent with achieving its primary inflation and employment objectives without causing unnecessary instability in output, interest rates and the exchange rate. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.

Comments

No comments yet

Most Read

SBS FirstHome Combo 4.29
Unity First Home Buyer special 4.69
Co-operative Bank - First Home Special 4.89
ANZ Special 4.99
SBS Bank Special 4.99
ASB Bank 4.99
TSB Special 4.99
Kiwibank Special 4.99
Westpac Special 4.99
Co-operative Bank - Owner Occ 4.99
ICBC 4.99
Wairarapa Building Society 4.75
Nelson Building Society 4.97
Kainga Ora 4.99
SBS Bank Special 4.99
Co-operative Bank - Owner Occ 4.99
Unity 4.99
TSB Special 4.99
ANZ Special 4.99
ASB Bank 4.99
AIA - Go Home Loans 4.99
Westpac Special 4.99
Westpac Special 5.39
ICBC 5.49
BNZ - Classic 5.59
Co-operative Bank - Owner Occ 5.69
ASB Bank 5.69
SBS Bank Special 5.69
AIA - Go Home Loans 5.69
BNZ - Std 5.79
Kiwibank Special 5.79
Kainga Ora 5.79
TSB Special 5.89
SBS FirstHome Combo 4.19
AIA - Back My Build 4.44
CFML 321 Loans 5.25
Co-operative Bank - Owner Occ 6.20
Co-operative Bank - Standard 6.20
Heartland Bank - Online 6.25
Kainga Ora 6.44
Kiwibank Special 6.50
Kiwibank - Offset 6.50
ICBC 6.50
Kiwibank 6.50

More Stories

Four decades of 6-7% yearly house price growth ending

Friday, March 21st 2025

Four decades of 6-7% yearly house price growth ending

New Zealander’s reliance on property capital gains in the mid-single digits is at an end.

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

Friday, January 31st 2025

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

It’s been years in the making and former real estate agent Mike Harvey is now coming to market with his platform matching buyers and sellers, an offering he says will be a gamechanger for the industry.

Leaving last year's stumbling housing market behind

Friday, January 17th 2025

Leaving last year's stumbling housing market behind

As interest rates ease and job losses climb, New Zealand’s housing market faces a mixed year of modest growth, with conflicting forces shaping the outlook for homebuyers and investors.

Don’t bet on house prices rising faster than incomes

Wednesday, January 15th 2025

Don’t bet on house prices rising faster than incomes

Former Reserve Bank Governor and National Party leader Don Brash says there are grounds for believing that house prices may finally have ended the three-decade period when they rose significantly faster than incomes.