The Reserve Bank of New Zealand (RBNZ) today delivered another 0.5% rate hike, lifting the official cash rate to 4.75%:
In delivering its decision, the RBNZ noted that “the OCR still needs to increase… to ensure inflation returns to within its target range over the medium term”.
“While there are early signs of price pressure easing, core consumer price inflation remains too high, employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated”.
“Labour shortages remain a significant constraint on economic activity, contributing to heightened wage inflation. People are moving jobs at an elevated pace, consistent with labour shortages and strong demand”, the RBNZ added.
“While there are early signs of demand easing it continues to outpace supply, as reflected in strong domestic inflation”.
The RBNZ concluded by stating that rates will rise further in the month ahead.
“The Committee agreed that monetary conditions need to tighten further, as indicated in the November Statement, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1 to 3% per annum target range. The Committee remains determined to achieve its Monetary Policy Remit”.
Curiously, there was no mention in the RBNZ’s media release of the fixed rate mortgage cliff.
According to Westpac, more than half of New Zealand’s mortgage book will this year reset from ultra-cheap pandemic fixed rate mortgages to rates that are at least double current levels.
Thus, there is already further tightening built-in, and the RBNZ risks going too far if it hikes rates further.
