ZB

Reserve Bank lifts OCR by 50 basis points to 2.5 per cent

Author
Jamie Gray, NZ Herald ,
Publish Date
Wed, 13 Jul 2022, 2:11pm
Reserve Bank Governor Adrian Orr. Photo / File
Reserve Bank Governor Adrian Orr. Photo / File

Reserve Bank lifts OCR by 50 basis points to 2.5 per cent

Author
Jamie Gray, NZ Herald ,
Publish Date
Wed, 13 Jul 2022, 2:11pm

The Reserve Bank has raised its official cash rate (OCR) by 50 basis points to 2.5 per cent in its latest bid to head off inflation.

The increase - the third 50 basis point rise in a row - was largely expected by the market.

The Reserve Bank said its monetary policy committee had agreed that it remained appropriate "to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment".

"The level of global economic activity, combined with the ongoing supply disruptions largely driven by both Covid-19 persistence and the Russian invasion of Ukraine, continues to generate global inflation pressures," the bank said.

New Zealand's annual inflation rate hit 6.9 per cent for the year to March, the largest movement since 1990.

The wholesale interest rate market has priced in the OCR peaking at 3.94 per cent, matching the Reserve Bank's own forecast peak rate.

The bank noted that food and energy prices had been especially affected by geopolitical tension.

"However, the pace of global economic growth is slowing."

In New Zealand, domestic spending remains supported by high employment levels, resilient household balance sheets in aggregate, continued fiscal support, and a strong terms of trade.

The reduction in Covid-19 health-related restrictions was also enabling increased demand.

"Labour and resource scarcity are also contributing to upward price pressures which are currently exacerbated by seasonal illness, a resurgence in Covid-19 cases, and a net outflow of labour abroad.

"In these circumstances, spending and investment demand continues to outstrip supply capacity, with a broad range of indicators highlighting pervasive inflation pressures."

Employment remained above its maximum sustainable level and the Reserve Bank's core inflation measures were around 4 per cent, it said.

The committee said there was a near-term "upside risk" to consumer price inflation and emerging medium-term downside risks to economic activity.

The New Zealand dollar was barely changed after the 2pm release, trading at US61.27c.

The Reserve Bank, along with most central banks around the world, is tightening monetary conditions in a bid to curtail rising inflation.