| Consensus | Consensus Range | Actual | Previous | |
| Change | 25bp | 0bp to 25bp | 0bp | 25bp |
| Level | 3.00% | 2.75% to 3.00% | 2.75% | 2.75% |
Highlights
The Reserve Bank of New Zealand's Monetary Policy Committee left the official cash rate on hold at 2.75 percent at its meeting today, contrary to the consensus forecast for an increase of 25 basis points. Officials voted 4-3 to keep rates on hold after they had hiked by 25 basis points at each of their previous two meetings.
In the statement accompanying today's decision, officials judged that higher fuel prices and a weaker exchange rate will liking push headline inflation to around 4.4 percent in the three months to December, further above the one to three percent target band. They stressed, however, that policy decisions are focused on the medium-term inflation outlook. They also judge that economic growth"continues to recover, although conditions remain uneven".
Three committee members concluded that increasing the policy rate today was warranted, but four members voted for no change and to wait for further information. All members agreed that some further reduction in monetary stimulus is likely to be required to return inflation to 2 percent.
Market Consensus Before Announcement
The bank will move by 25 bp now and signal more to come as it reacts to rising energy prices and the threat of higher inflation headed into year end.
Definition
The Reserve Bank of New Zealand (RBNZ) meets eight times a year and decides whether to change or maintain New Zealand's Official Cash Rate (OCR). The goal of the RBNZ's monetary policy is to spur or slow economic growth or affect the exchange rate of the New Zealand dollar. The RBNZ maintains an inflationary target range of 1 percent to 3 percent and will change rates to keep inflation within that range.
Description
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.