The Reserve Bank of New Zealand (RBNZ) raised rates by 50 basis points for the fifth time in a row, raising the cash rate to 3.5%.
The Monetary Policy Committee had considered raising the Official Cash Rate (OCR) by 75 basis points to combat 32 years of high inflation of 7.3%, but ultimately decided against a 50 basis point hike. Agreed as appropriate.
Several members of the committee argued that larger increases would reduce the likelihood of higher OCR peaks in the future.
“Other members underscored the extent of policy tightening that has been implemented so far,” said Monetary Decision statement read. “Members also noted the slow transmission of monetary policy and the slow pass-through to retail rates.”
The committee stressed that rising global interest rates and risk aversion are putting downward pressure on the New Zealand dollar.
The New Zealand dollar is currently at 57 cents, down from 72 cents in October 2021.
“Continued depreciation of the New Zealand dollar poses the risk of inflation rising further over the forecast period,” the committee said.
In the domestic economy, cost pressures and labor shortages remained the two main concerns for businesses.
“The Commission agreed that the labor market remains very tight. Net immigration remains negative and a sustained recovery in external labor supply has not yet occurred,” they said.
ANZ senior economist Myles Workman said data suggested that monetary tightening had not yet gained the traction needed to quickly bring down high core inflation.
At the same time, he noted that the world outlook seems to be getting weaker by the day.
“In short, there is a plausible scenario in which higher than expected global inflation and lower than expected global growth at the same time are a troubling combination, and the appropriate policy response is again up for debate. there is,” he said. .
More Pain in Mortgage
CoreLogic NZ senior economist Kelvin Davidson said mortgage rates have yet to peak, especially if the Reserve Bank needs to raise the OCR above 4% next year.
“From a borrower’s perspective, it’s clear that the rise in mortgage rates over the past year or so, let alone more rises in the years to come, has created considerable challenges,” he said. “But it’s also worth pointing out that there may be less to fear about the ‘refinancing wave’ than previously thought.”
In June 2021, 66% of existing fixed mortgages were due to be revalued within 12 months, now down to 44%.
“This is the lowest share since March 2018 and is rather below ‘normal,'” Davidson said.
Mortgage interest rates have already doubled from about 2.5% in early 2021 to 6%, according to Jarrod Kerr, chief economist at Kiwibank, which means interest payments on an $800,000 mortgage will be $24,000 ($24,000). US$13,800).
“Unfortunately, the RBNZ needs to see this pain in households before it can be confident it can bring inflation down to 2%,” he said. Said.
He added that the hawkish monetary policy statement could signal a risk that the current tightening cycle could peak at 4.5% instead of the earlier forecast of 4%.
This comes after the Reserve Bank of Australia began to delay its tightening cycle, raising the cash rate from 0.25% to 2.6% on 4 October.