RBNZ: Accelerated tightening against major central banks
2022-11-25
■ New Zealand's central bank accelerates rate hikes to curb inflation, prepares to accept recession.
■ Policy rates will reach around 5.5% by mid-2023, testing the NZD's ability to recover.
On the 23rd, the Central Bank of New Zealand (RBNZ) raised its policy rate by 75 basis points to 4.25%, the highest level since January 2009. It is also the ninth consecutive rate hike since October 2021. The Committee decided to raise interest rates by 25 basis points three times in a row until February this year and by 50 basis points five times in a row from April to October, and accelerated the pace at this meeting with the highest rate hike ever. According to the agenda, a 100 basis point rate hike was also discussed. The statement raised its previous forecast as "the policy rate needs to reach higher levels sooner to bring inflation back to the target range (1-3%) in the medium term," with a peak of 5.5% expected in July-September 2023 and remaining at the same level through April-June 2024. On the other hand, the economic outlook has been revised downward, with real GDP forecast to enter negative growth, falling 0.5% YOY from April to June 2023 and continuing through January to March 2024 (-0.1% YOY).
Royal Bank of New Zealand Governor Orr said in parliamentary testimony on the 24th that "at the moment, monetary policy is repressive" and pointed to the need to raise interest rates to control inflation, even if doing so would lead to a recession. Consumer price index (CPI) growth accelerated to 7.3% year-on-year from July to September, above the central bank's target. A significant rate hike at this committee meeting is considered inevitable as supply and demand in the labor market remains tight and there are still three months to go before the next committee meeting on February 22, 2023. Interest rate futures markets are increasingly contemplating an eventual range of interest rate hikes to around 5.5% by mid-2023. The New Zealand dollar is on track for a sixth straight week of rally against the U.S. dollar amid growing speculation that the U.S. Federal Reserve will scale back its rate hikes. This resilience is strong even in the face of the realization that the New Zealand economy is stagnant.