Reserve Bank lifts OCR to 0.75%
The Reserve Bank has raised the official cash rate (OCR) to 0.75 per cent, a climb of 25 basis points from 0.5 per cent.
The Reserve Bank’s Monetary Policy Committee says reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment remains an appropriate course of action.
In a statement on November 24, the committee says the level of global economic activity continues to rise, supported by accommodative monetary and fiscal policy settings, and the relaxation of Covid-related health restrictions.
“The pace of global economic growth has ebbed, however, due to the elevated uncertainty created by the persistent Covid virus,” it explains.
“Global supply-chain disruptions are causing both cost pressures and constraints on production, at a time when consumer demand remains strong. Central banks globally face the challenge of distinguishing between transitory price increases and underlying sustained inflation pressures to assess the need for, and timing of, reductions in the level of monetary policy stimulus.
“New Zealand’s public health restrictions are easing as the country transitions into the Covid protection framework.
“The framework will enable greater mobility of people, and goods and services. With the easing of restrictions, it is anticipated that Covid will become more widespread geographically, albeit manageable for health authorities and less harmful for those vaccinated.
“However, household spending and business investment will be dampened in the near-term by these ongoing health uncertainties.”
The committee says despite Covid-19 lockdowns in parts of New Zealand, underlying economic strength remains supported by aggregate household and business balance sheet strength, fiscal policy support, and strong export returns.
“Capacity pressures have continued to tighten. For example, employment is now above its maximum sustainable level. A broad range of economic indicators highlight that the New Zealand economy continues to perform above its current potential.”
The committee notes further removal of monetary policy stimulus is expected over time given the medium-term outlook for inflation and employment.