RBNZ: Continue the pace of rate hikes already made during the year.
2022-10-06
■ RBNZ keeps pace of rate hikes, lifting interest rate to 7-year high
■ It is worth noting that a 50 basis point rate hike is still expected at the next committee meeting
On the 5th, the Central Bank of New Zealand (RBNZ) raised its policy rate by 50 basis points to 3.5%. This is the eighth consecutive rate rise, but since April, there have been five consecutive decisions to raise rates by 50 basis points, leaving the policy rate at its highest level in the past seven years. In the statement, members agreed that "it is essential to continue to tighten policy at a pace that maintains price stability and supports maximum sustainable employment." The statement acknowledged that "core consumer prices are too high and labor resources are inadequate." And it reaffirmed "the commitment to continue to raise interest rates until members are satisfied that inflation is sufficiently contained and back within the Bank's target range (1-3% per annum)."
A 75 basis point rate hike was also discussed, according to the agenda. Members raised a number of points, including the likelihood of policy rates approaching what the RBNZ considers to be peak levels, the degree of tightening that has occurred to date and the delay in monetary policy communication, but the meeting decided that a 50 basis point rate hike was appropriate.
The view to continue the pace of rate hikes will be reinforced if ① the consumer price index (CPI) for July-September, to be released on July 18, grows at the same rate as in the previous quarter (7.3% annualized), and ② the unemployment rate and labor cost index, to be released in early November, are confirmed to be as strong as in the previous quarter, at 3.3% and 3.4% annualized. In the interest rate futures market, nearly 60% of the market still sees a 50 basis point rate hike at the last committee meeting on November 23rd of this year, and nearly 40% of the market sees a 25 basis point rate hike. Given that the RBNZ recognizes that its perceived endpoint (terminal rate) level of rate hikes is around the low 4% range, this meeting has a high level of focus on the pace of rate hikes beyond 2023.