RBNZ boosts cash rate to 3%

On Wednesday (17 August), the Reserve Bank of New Zealand (RBNZ), also known as Te Pūtea Matua, confirmed that the country’s official cash rate (OCR) would be lifted from 2.5 per cent to 3 per cent. 

According to the central bank, price stability and driving inflation down to a figure between 1 per cent and 3 per cent were key motivating factors for the decision.

Last month, it was confirmed that inflation in New Zealand hit 7.2 per cent over the June quarter, the highest figure reported in 32 years.  

“The [Monetary Policy Committee] agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment,” the RBNZ said in a statement. 

“Core consumer price inflation remains too high and labour resources remain scarce.”

Additional contributors were, according to the RBNZ, rising global consumer price inflation, driven by both the war in Ukraine and COVID-19-related “supply-chain bottlenecks”. 

“The outlook for global growth continues to weaken, reflecting the ongoing tightening in global monetary conditions,” the RBNZ said. 

The central bank also noted that, domestically, despite spending remaining resilient, “acute labour shortages” have impacted production, placing strain on supply capacity. 

The impact of this limited workforce has in turn been heightened by “seasonal and COVID-19 related illnesses”.

“In these circumstances, spending and investment continues to outstrip supply capacity, and wage pressures are heightened,” the RBNZ added.  

“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 per cent per annum target range.

“The committee remains resolute in achieving the Monetary Policy Remit.”

The decision marks the seventh consecutive lift of the OCR since October, which saw the RBNZ hike from the near 18-month low of 25 bps in October to 50 bps.

In April, the RBNZ decided to increase the OCR by 50 bps, which at the time was the largest bump made by the central bank since 2000, repeating the same hike in May and July.  

The RBNZ did not review its OCR in June. 

The trend shares similarities with Australia, with the nation’s cash rate being lifted to 1.85 per cent earlier this month, with inflation tipped as a catalyst for the decision. 

Over the June quarter, Australia’s inflation reached 6.1 per cent, the highest recorded level in over 20 years. 

[Related: RBNZ hikes cash rate to 2.5%]