Market Analytics and Technical Considerations
Key Points
At its final meeting of the year, the Reserve Bank of New Zealand (RBNZ) decided to increase the official cash rate (OCR) by 75 basis points to 4.25%. The New Zealand central bank created the OCR in 1999, and today’s increase in rates, the fifth in a row of 50 basis points, raises the baseline to its peak point since 2008.
The RBNZ also hinted at additional tightness to come; it now expects the OCR to crest at 5.5% in 3Q23, up from its previous level of 4.1%, before declining in 4Q24, even as it projects a recession for the following year. Additionally, it predicts that the economy will decrease for four consecutive quarters beginning in 2Q23, and that annual inflation will increase to 7.5% from 7.2% in the third quarter of this year.
The following monetary policy decision will be taken on February 22, which is three months from now. Frontloading right now could be preferable to waiting later given how the RBNZ normally acts preventively. We had earlier underlined the risks, which are still massively in favour of more rate increases and a larger OCR over our projected 4%. Rates will likely rise closer to 5.0% before the RBNZ pauses its ongoing hiking cycle, in our opinion.
