Fresh hike for official cash rate

The Reserve Bank of New Zealand has raised the official cash rate (OCR) by 50 basis points to 4.75 per cent and says core inflation remains high and inflationary pressures are persistent.

Governor Adrian Orr adds it is too early to assess the monetary policy implications of Cyclone Gabrielle and the recent flooding in Auckland  “given that the scale of destruction and economic disruption are only now becoming evident”.

Explaining the latest rate rise on February 22, he notes while there are early signs of price pressures easing, core consumer price inflation remains too high, employment is above a maximum sustainable level, and near-term inflation expectations remain elevated.

“The [monetary policy committee’s] current assessment is that over coming weeks, prices for some goods are likely to spike and activity will be weaker than previously expected,” says Orr.

“In time, the infrastructure and community rebuild will add to activity and inflationary pressures, especially given existing capacity constraints in the economy.”

The Reserve Bank expects a shallow recession this year and for the OCR to peak at 5.5 per cent towards the latter stages of 2023.