UOB Group’s Economist Lee Sue Ann reviews the latest interest rate decision by the RBNZ.

Key Takeaways

“The Reserve Bank of New Zealand (RBNZ) decided to raise its official cash rate (OCR) by 50bps to 4.75% at its first meeting of the year. Today’s hike follows the 75bps hike at its final meeting of 2022, which was the largest increase since the New Zealand central bank introduced the OCR in 1999. Once again, the RBNZ signaled that the OCR still needs to increase, to ensure inflation returns to within its target range over the medium term.”

“Similar to the Nov Monetary Policy Statement, the RBNZ’s OCR forecasts today show the OCR peaking at 5.5% this year. It reiterated that it expects a recession starting in 2Q23, but the economy is seen rebounding back a little sooner next year. Meanwhile, it now sees inflation accelerating to 7.3% in the current quarter from 7.2% in 4Q22.”

“At this juncture, we are keeping to our forecast of three more 25bps rate hikes at its 5 Apr, 24 May and 12 Jul monetary policy meetings. This should bring the OCR to a peak of 5.50% by 3Q23.”