New Zealand's RBNZ may raise OCR for the first time by 0.75%

A survey data from Reuters showed that the Bank of New Zealand (RBNZ) raised rates by 75 basis points for the first time on Wednesday. The move was taken to reduce the high level of inflation.

According to a Reuters poll, the Reserve Bank of New Zealand (RBNZ) raised rates by 75 basis points for the first time on Wednesday in order to reduce the high level of inflation. The bank thus only accelerated its already aggressive campaign to tighten monetary policy.

The inflation rate of 7.2% is considered to be well above the RBNZ's target range of 1–3%. This rate, along with a tight labor market, has prompted economists to forecast a higher peak official interest rate (OCR). It currently stands at 3.50%.

Housing costs in New Zealand have risen more than 40% since the pandemic began before peaking last November. Since then, however, prices have fallen by more than 10%. In addition, the RBNZ recently stated that a prolonged decline in the cost of goods will remain the best option for long-term financial stability.

More than 60% of economists surveyed expect interest rates to rise by 75 basis points on Wednesday, up to 4.25%. That forecast was indicated by analysts after hikes of 50 basis points in five previous consecutive meetings. Other economists are expecting a sixth increase of 50 bps. Thus, the rate is likely to increase to 4.00%.

Nick Tuffley, chief economist at ASB said that inflationary pressures have intensified to the point where the bank and most analysts can expect exactly 75 basis points of rate hikes.

Tuffley added that part of the reason the rate is accelerating now is that the next RBNZ decision is not due until three months from now.

The nation's largest banks — ANZ, Kiwi Bank, Bank of New Zealand and Westpac — are also expecting a 75 basis point rate hike on Wednesday. Interest rate futures determine a roughly 60 percent probability that this will happen.

Most economists expect the OCR could reach 4.75% by the end of next March. That figure is 75 basis points higher than the previous survey.

ANZ economist Sharon Zollner noted the RBNZ's steadfast confidence in its policies. The general trend of many countries toward slower rate hikes is unlikely to affect the New Zealand central bank's decision.

According to recent forecasts, the interest rate could peak at 5.0% with another 75 basis point increase in February 2023. If inflation declines faster than expected, the RBNZ may well slow the pace of rate hikes.

According to the average survey results, rates could rise to 4.75% and remain at that level for the rest of next year. 

According to the latest RBNZ survey, analysts expect only a slight decline in inflation. It is likely to be higher than previously forecast. A Reuters poll found that inflation will not fall to the RBNZ target until late 2023.