The Reserve Bank of New Zealand has increased its official cash rate by 50 basis points from 4.75 percent to 5.25 percent, a more aggressive more than the consensus forecast for an increase of 25 basis points but in line with previous increases. Officials have now increased this rate by a cumulative 500 basis points since October 2021 as part of efforts to return inflation to their target range of 1.0 percent to 3.0 percent.

The statement accompanying today's decision notes that consumer inflation"is still too high and persistent", with the most recent CPI data showing headline inflation at 7.2 percent and core inflation at 7.4 percent in the three months to December. Officials also note the impact of recent severe weather events means that price pressures will likely be stronger in the near-term than they anticipated when they prepared their most recent inflation forecasts in February.

Rebuilding and repairs after these weather events are expected to provide a boost to economic activity in the near-term. However, officials believe conditions will weaken later in the year, citing"the slowing global economy, reduced residential building activity, and the ongoing effects of the monetary policy tightening to date." They argue that this slowdown is necessary to return inflation to its target range over the medium-term.

Reflecting this assessment, officials concluded that policy needed to be tightened further today"to ensure core inflation and inflation expectations begin to fall". The statement shows that officials considered raising rates by either 25 basis points or 50 basis points, but decided on the latter option, partly in response to a recent decline in wholesale interest rates. It appears likely that officials' bias will remain in favour of further tightening in coming months.

The Reserve Bank of New Zealand is expected to raise its policy rate by 25 basis points. The bank moved down to a 50-point move at its February meeting following a 75-point hike in November.

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.