RBNZ lifts OCR to 2.75% as further hike remains possible
Borrowing conditions in New Zealand have tightened again after the Reserve Bank raised the Official Cash Rate by 25 basis points to 2.75 per cent, its second consecutive increase.
The Reserve Bank of New Zealand’s Monetary Policy Committee signalled that another rise remains possible before year-end, although policymakers appear less urgent about returning the OCR to a neutral setting of 3 per cent or higher.
Governor Anna Breman said a further increase was likely, but stressed that timing remained uncertain as the central bank assesses the effect of the two recent hikes and incoming information on medium-term inflation.
More rate decisions remain this year
The RBNZ began its latest tightening cycle in July after headline inflation moved above its 1–3 per cent target range.
Two policy meetings remain this year, including one scheduled nine days before the November 7 election. The central bank said future decisions would depend on data and the Monetary Policy Committee’s assessment of risks to medium-term inflation.
Kelly Eckhold, chief New Zealand economist at Westpac in Auckland, said the discussion around a further increase appeared more likely to centre on December than necessarily both October and December. He said policymakers would want more evidence about the durability of the economic recovery before committing to additional OCR increases.
Market expectations shifted following the decision and the RBNZ’s cautious guidance. The New Zealand dollar extended its decline by as much as 1 per cent, while the yield on policy-sensitive two-year government notes fell 7 basis points to 3.58 per cent.
Swaps data cited in the report showed the implied probability of an October rate increase falling to about 36 per cent, from 65 per cent before the meeting.
Impact on borrowers may vary
The OCR increase will feed through to variable home-loan rates and overdrafts. However, the majority of New Zealand mortgages are on fixed terms and are influenced by a broader range of bank funding costs.
RBNZ officials said banks had already increased many fixed rates and that they did not expect the latest OCR move to have a large immediate effect through those products.
For property investors and borrowers, that means the effect of the central bank’s tightening may differ depending on loan structure and repricing timing. The RBNZ’s guidance also leaves the path for borrowing costs dependent on future inflation and economic data rather than establishing a fixed sequence of increases.
Election adds a political backdrop
The rate rise comes as the government prepares for the November election. Prime Minister Christopher Luxon is campaigning on economic management, while the opposition Labour Party has pledged to restore a dual mandate of price stability and maximum employment for the RBNZ if it wins office.
Finance Minister Nicola Willis welcomed the central bank’s assessment that the economic recovery was resuming and expected to broaden. She said the current recovery was being driven by the export sector rather than rising house prices.
The decision therefore leaves borrowers facing a higher benchmark rate while markets and policymakers wait for evidence on whether another increase will be needed before the end of the year.
SOURCE ATTRIBUTION:
Based on reporting by Bloomberg.
