The Reserve Bank of New Zealand's Monetary Policy Committee has increased the official cash rate by 25 basis points from 5.25 percent to 5.50 percent, in line with the consensus forecast for an increase of 25 basis points. Officials have now increased this rate by a cumulative 525 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 has moderated, with the most recent CPI data showing headline inflation falling to 6.7 percent in the three months to March from 7.2 percent in the three months to December and core inflation easing from 7.4 percent to 7.3 percent. Officials note the impact of recent severe weather events on price pressures appears to have been less pronounced than they previously anticipated but they warned that"core inflation pressures will remain until capacity constraints ease further".

The statement also notes that previous policy tightening has weighed on consumer spending and residential construction. Repairs and rebuilding after recent weather events will provide a short-term boost to activity, but officials expect fiscal policy to have a contractionary impact on demand over the forecast period.

Reflecting these factors, the MPC considered the two options of leaving rates unchanged or an increase of 25 basis points at today's meeting. Two members voted for no change, but the other five members voted for the increase. The majority argued that further policy tightening would increase confidence that inflation will return to its target range. Despite this disagreement about today's decision, members reached a consensus"that interest rates will need to remain at a restrictive level for the foreseeable future". This suggests that a pause in rate hikes may be considered again at the next policy meeting if the current level of rates is judged to be sufficiently restrictive.

The Reserve Bank of New Zealand is expected to scale down its rate hike to 25 basis points at its May meeting that would follow a 50-point move at its last meet in February meeting following a 75-point hike at its prior meeting.

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.