Reserve Bank of New Zealand raises its Official Cash Rate from 0.25% to 0.5%

Despite the persistent Delta variant outbreak expectations were nearly unanimous the Bank would hike.

Headlines via Reuters from the statement:

  • monetary stimulus further reduced
  • says appropriate to continue reducing the level of monetary stimulus
  • further removal of monetary policy stimulus is expected over time
  • cost pressures are becoming more persistent
  • current covid-19-related restrictions have not materially changed the medium-term outlook for inflation and employment
  • capacity pressures remain evident in the economy
  • economic activity will recover quickly as alert level restrictions ease
  • headline cpi inflation is expected to increase above 4 percent in the near term
  • says inflation to return towards 2 percent midpoint over the medium term

And, from the Minutes to the meeting, Headlines via Reuters:

  • the committee noted that further removal of monetary policy stimulus is expected over time
  • future moves contingent on the medium-term outlook for inflation and employment.
  • policy stimulus will need to be reduced to maintain price stability and maximum sustainable employment over the medium term.
  • demand shortfalls are less of an issue than the economy hitting capacity constraints
  • number of factors are expected to constrain house prices over the medium term
  • the committee will be watching closely how the economy adjusts to the ongoing disruption from endemic covid-19
  • early data suggest that business and consumer confidence remained robust during the latest lockdown

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Background (previews)

In August the RBNZ held the cash rate unchanged despite expectations in the weeks and days leading up to the meeting for a hike. Hike expectations were slashed just hours ahead of the August meeting due to the latest COVID-19 outbreak ... that has not gone away. As the vaccination rate in NZ climbs the New Zealand government has diluted its 'covid-zero' approach, gradually easing restrictions despite persistent cases.

There is no press conference scheduled for Governor Orr today:

Reserve Bank of New Zealand raises its Official Cash Rate from 0.25% to 0.5%