Rate rise driven by lingering inflation risk
The Reserve Bank of New Zealand has lifted the official cash rate by 25 basis points to 2.50%.
The move comes despite a recent easing in global oil prices following the partial reopening of the Strait of Hormuz.
The Monetary Policy Committee reached consensus on the decision on Wednesday, judging that inflation — forecast to peak at 3.9% in the June quarter before easing to 3.3% in September — remains too persistent to leave policy unchanged.
The committee said "high inflation erodes households' purchasing power and dampens domestic demand," adding that getting inflation back to target is needed to support a sustainable recovery in growth and employment. Annual headline inflation is not expected to reach the target mid-point until mid-2027, with domestic growth also expected to resume from September as the effects of the oil shock fade.
Mortgage rates already shifting
That decision is already being felt in the mortgage market. The RBNZ noted that short-term mortgage rates had continued to rise since May, while longer-term mortgage rates have already eased, as falling wholesale rates take some of the upward pressure off pricing. The Bank added that "financial system stability continues to pose no material trade-off to meeting its inflation objective," suggesting little appetite to slow the tightening cycle on stability grounds alone.
More hikes flagged, timing uncertain
Perhaps most significant for brokers advising clients on fixed-rate strategy is the committee's forward guidance. It cautioned that "while further OCR increases appear likely at upcoming meetings, their timing is highly uncertain."
Committee members remain split on the inflation outlook, with two members viewing risks as skewed to the upside and four assessing them as broadly balanced. With the next review still to come, advisers will want to watch incoming inflation and wholesale rate data closely for clues on how soon — and how far — the tightening cycle has left to run.
Read the RBNZ announcement here.
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