Cash rate bumped up to 2.75%

The Reserve Bank of New Zealand has hiked the official cash rate (OCR) by 25 basis points to 2.75 per cent, its highest level since September last year. 

The bank’s monetary policy committee notes that inflation increased to 4.1 per cent in the June quarter due to higher fuel prices stemming from conflict in the Middle East. 

“Core inflation, expected wage growth, and inflation expectations remain consistent with inflation returning to the one to three per cent target band by mid-2027 and the two per cent target mid-point later next year,” the committee adds. 

“After lacklustre growth in the June quarter, New Zealand’s economic recovery has most likely resumed but remains uneven. 

“Resilient demand from New Zealand’s trading partners and strong export prices are supporting income growth and investment in export-exposed sectors and regional New Zealand. 

“In contrast, weak income growth, job insecurity, and flat house prices continue to weigh on household spending and residential investment.” 

The committee says the recovery is expected to strengthen and broaden, and conditions in the labour market should improve as the recovery gathers pace. 

It believes gradually removing monetary stimulus is appropriate to return inflation to the two per cent target mid-point while supporting growth and employment. 

The committee notes its September 2 decision will also reduce the risk the OCR needs to be increased by more later.