The Reserve Bank of New Zealand’s (RBNZ) latest monetary policy statement was incredibly hawkish, stating that it considered a 0.75% rate hike and that it would hike rates further in coming months to tame inflation:
The Committee considered whether to increase the OCR by 50 or 75 basis points at this meeting…
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 1-3 percent per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit.
The latest inflation result will be ‘red rag to a bull’ for the RBNZ, with New Zealand’s CPI remaining stubbornly high at 7.2% in the year to September – much higher than any market forecasts.
In response, ASB economists have lifted their official cash rate (OCR) forecasts, tipping a 0.75% rise next month and two more 0.50% rises early next year. This would mean a peak OCR of 5.25%, up from 3.50% currently.
ANZ economists have also lifted their OCR forecasts, tipping the RBNZ to hike by 0.75% in both November and February before stopping to take stock.
New Zealand house prices have already plunged 12.6% from their November 2021 peak, according to the leading REINZ house price index. And the September quarter inflation shocker will only add to the pain by driving mortgage rates even higher.
After recording one of the world’s biggest house price booms over the pandemic, New Zealand now faces one of the biggest busts.
