RBNZ open to hiking cash rate beyond 4% to tame inflation
WELLINGTON: New Zealand’s central bank is open to the possibility of raising its benchmark rate as high as 4.25% amid uncertainty over the amount of tightening needed to regain control of inflation.
The Reserve Bank of New Zealand’s (RBNZ)’S forecast track for the official cash rate (OCR) shows a peak of 4.1% in mid2023, which means there’s a risk of it climbing to 4.25%, deputy governor Christian Hawkesby said in an interview with Bloomberg News yesterday in Wellington.
“We’re deliberately ambiguous to reflect that uncertainty of where the end point may be,” he said.
“It could be 4%, it could be 4.25%, it could be a balanced range around that.”
The RBNZ wants to get the cash rate “comfortably” above a neutral setting so that it is slowing the economy and cooling price pressures, but has acknowledged that the neutral level may be higher than its previous estimate of 2%.
The central bank last week raised the OCR to 3% from 2.5% and said it remains appropriate to continue hiking “at pace.”
Hawkesby said the RBNZ hasn’t settled on a new estimate for where neutral is but “we’ve talked about a range of 2% to 3%.”
“In an environment where we do have strong domestic inflation pressures that we are looking to lean in against you need to be shifting the OCR into that zone where you can be more comfortable that you’re doing your work of leaning in,” he said.
Hawkesby said the economy has been “more resilient than we had expected,” with consumption and domestic demand holding up more than business and consumer confidence surveys suggested they would.
“But we’re also conscious that monetary policy does take time to work its way through,” he said.
After four consecutive half percentage point rate hikes, the RBNZ is getting closer to the point where it may slow the pace of tightening, he said.
“I think it’s definitely on the horizon. It’s that idea that as we get closer to the peak of what we’re projecting, as we get closer to being comfortably above neutral, then our decisions become more finely balanced,” Hawkesby said.
“And there’s almost deliberately that ambiguity in the track of where we are by February just to acknowledge that reality that nothing’s set in stone.” — Bloomberg
“We’re deliberately ambiguous to reflect that uncertainty of where the end point may be.” Christian Hawkesby