RBNZ set to deliver another rate rise - with more to come
Economists and financial markets are almost unanimous in picking the Monetary Policy Committee will raise the official cash rate later today.
The Reserve Bank of New Zealand (RBNZ) is set to raise its benchmark interest rate for the second time in a row, with more increases expected. Oil price declines have raised expectations that inflation has peaked and the economic recovery is underway. Economists and financial markets unanimously predict the Monetary Policy Committee (MPC) will increase the official cash rate (OCR) after the July increase.
Westpac's Kelly Eckhold noted that the RBNZ's expectations in May forecasts were largely accurate, suggesting little change in their current views. ANZ's Sharon Zollner highlighted recent inflation indicators being more favorable than anticipated, along with stronger economic growth, job creation, and positive business and consumer confidence. These factors indicate the OCR could be brought closer to its neutral level (3%) in a gradual manner.
The precise timing of the next OCR rise remains uncertain, with financial markets divided between October and December. Some question whether the RBNZ would raise rates in October, just weeks before the election, or wait until their final meeting in early December. A track that preserves the option of raising in October appears prudent given the high uncertainty.
While the May Monetary Policy Committee's rate track indicated OCR rises to at least 3.25% by mid-next year, some forecasters believe OCR may need to reach 4% as the economy expands. Kiwibank's Jarrod Kerr has vehemently argued against further rate hikes, believing they would restrain an already restrained economy. However, growth advocates argue that enabling growth should be a bold and beneficial move.
Inflation remains a concern, but the uneven economic recovery and continuing effects of past rate increases suggest another hike may be premature. Even Boffa Miskell's Kelly Gupwell, a member of the Institute of Economic Research's shadow monetary policy board, shares Kerr's view, requesting stronger evidence of entrenched inflation pressures before supporting another rate increase.
Written by urgent.news from RNZ Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
