The Reserve Bank of New Zealand has increased its official cash rate by 50 basis points from 4.25 percent to 4.75 percent, in line with the consensus forecast. Officials have now increased this rate by a cumulative 450 basis points since October 2021 as they unwind the policy accommodation put in place during the initial stages of the Covid-19 pandemic.

The statement accompanying today's decision notes that core consumer inflation remains too high, with data released last month showing an increase from 6.7 percent in the three months to September to 7.4 percent in the three months to December. Headline inflation was steady at 7.2 percent, well above the target range of 1.0 percent to 3.0 percent. Officials note that demand continues to outpace supply.

Today's meeting follows last week's devastating Cyclone Gabrielle and officials have noted that the scale of destruction and economic disruption this and other weather events will have is not yet clear. They expect prices will be stronger and activity weaker in the near-term as a result of these events but note that monetary policy will continue to be set with reference to the medium-term outlook, with fiscal policy expected to be adjusted in response. Rebuilding efforts are also expected to add to inflationary pressures.

Reflecting this assessment, officials concluded that policy needed to be tightened further today for them to be confident"there is sufficient restraint on spending" to bring inflation back to their target range of 1.0 percent to 3.0 percent. It appears likely that officials' bias will remain in favour of further tightening in coming months.

The Reserve Bank of New Zealand, following a string of 50-basis-point hikes, accelerated to 75 points at its last meeting in November. Expectations for February's meeting is for a move back to 50 points.

Meeting at roughly six week intervals, the Reserve Bank of New Zealand meets and decides whether to change or maintain New Zealand's Official Cash Rate. The RBNZ is known for its clarity regarding monetary policy intentions, thus the result is usually foreseen in advance. The decision aligns with the Reserve Bank of New Zealand's monetary policy to spur or slow economic growth or affect the exchange rate.

The RBNZ maintains an inflationary target range of 1 percent to 3 percent and will change rates to keep it within such a range, making rate decisions fairly predictable. Rate changes are significant nonetheless, affecting interest rates in consumer loans, mortgages, and bond rates. Increases or even expectations for rate increases tend to cause the New Zealand Dollar to appreciate, while rate decreases cause the currency to depreciate.

The RBNZ determines interest rate policy at it policy meetings. These meetings occur roughly every six weeks and are one of the most influential events for the markets. Market participants speculate about the possibility of an interest rate change. However, since the Bank is known for its clarity in setting policy, the result is usually built into the markets in advance. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

Frequency
Eight times a year.