NZ Reserve Bank throws 50 bps at cash rate

New Zealand’s official cash rate (OCR) has hit 4.75 per cent after the central bank raised the rate by 50 bps on Wednesday (22 February) that followed the 75 bps delivered in November 2022. 

As compared to Australia’s monthly monetary policy meeting, New Zealand’s monetary policy committee reviews the OCR seven times a year, with its next meeting due on 5 April.

The country’s central bank has followed the course of its global counterparts in trying to curb inflation by raising interest rates.

The committee said “inflation is too high” at 7.2 per cent in December (which remains below Australia’s 7.8 per cent) and “raising interest rates is the main tool we use to get inflation down”.

Similar to Australia, New Zealand’s central bank has a focus to keep inflation near the 2 per cent range.

On the back of the devastation caused by Cyclone Gabrielle, which has left thousands of homes destroyed, people stranded, and lives lost, the committee noted the “devastating effect on the lives of many New Zealanders”.

However, it noted “the immediate upward pressure on some prices, the effect that higher CPI inflation could have on longer-term inflation expectations, the ability to resource and supply any increase in demand and investment in affected regions,” the committee said.

As well as the longer-term impact these severe weather events will have on the productive capacity of New Zealand.

“While it is too early to estimate the full economic impacts, near-term rebuilding and restocking are likely to lift the level of economic activity, and consumer prices for some goods and services will come under upward pressure given supply-chain disruption and product scarcity,” it said.

“It remains unclear how significant the impact of these events will be on New Zealand’s longer-term productive capacity.”

At this stage, the committee agreed that the medium-term impacts of the severe weather events did not change its outlook for monetary policy.

The committee discussed financial conditions noting that increases in both shorter-term wholesale and mortgage rates have exceeded longer-term maturities.

It was also noted that deposit rate increases continue to lag the increases in wholesale and mortgage rates resulting in a further widening of bank margins between lending and deposit rates.

New Zealand central bank expects deposit rates to increase over the coming year incentivising savings, further dampening inflation and supporting the maintenance of current mortgage rates for a longer period.

RBA dumps holding rate in February

The 50-bp hike to Australia’s neighbour’s cash rate follows the Reserve Bank of Australia (RBA) monetary policy minutes released for February, which excluded the consideration to hold the cash rate in February.

The central bank considered a 25 bps or 50 bps was required reiterating global inflation remained very high.

This marked a change from December 2022 monetary minutes, where it considered holding the cash rate, before arriving at a 25-bp lift.

The RBA said its members acknowledged that the global outlook was “subject to a number of uncertainties” and there were “plausible scenarios for both stronger and weaker growth and inflation than expected.”

[Related: RBNZ delivers biggest rate hike yet]