Morning Brief – RBNZ hike rates as expected

Earlier today the RBNZ central bank hiked interest rates again earlier today, sending the New Zealand dollar sharply higher against the US dollar and the Australian dollar.

This was the fifth 50 basis point rate hike in a row from the Reserve Bank of New Zealand. The Bank said it was considering a 75bp rate hike – this is quite the contrast with the timid RBA yesterday which settled on a 25bp rate hike.

The central bank said that “The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment. Core consumer price inflation is too high and labour resources are scarce.

Global consumer price pressures remain heightened. The global demand for goods and services is exceeding supply capacity, putting upward pressure on prices. Food and energy prices are being particularly exacerbated by the war in Ukraine.

A recent decline in oil prices and an easing in some supply-chain constraints have seen headline inflation measures fall in some countries. However, core measures of inflation have risen and persist. Central banks are tightening monetary conditions, implying a weaker growth outlook for New Zealand’s trading partners.

In New Zealand, the level of domestic spending has remained resilient to date, in the face of slowing global growth and higher domestic interest rates. Employment levels are high, and household balance sheets remain resilient despite the fall in house prices.

New Zealand’s productive capacity is still being constrained by labour shortages and wage pressures are heightened. Overall, spending continues to outstrip the capacity to supply goods and services, with a range of indicators continuing to highlight broad-based pricing pressures.

Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1 to 3% per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit.”