Inflation assault: Reserve Bank set to lift OCR to 3%

WELLINGTON: The Reserve Bank is set to deliver a fourth consecutive 50basispoint rise in the official cash (OCR), taking it to a sevenyear high of 3%, as it continues its assault on inflation, running at a 32year high.

It will be the seventh rise in the OCR since last October, the most aggressive tightening cycle since the current monetary policy system was instituted in 1999, and the accompanying statement and forecasts will seek to reinforce the idea it is not done yet.

BNZ head of research Stephen

Toplis said for all the ructions on financial markets and economic numbers, little had changed of late.

‘‘Once everything is thrown into the mix, the outlook for New Zealand inflation and the labour market is little changed from what the Reserve Bank was looking at when it delivered its July monetary policy review or, for that matter, its May monetary policy statement.

‘‘Why would one expect the Reserve Bank to deliver an interest rate message that was significantly different to that of the May MPS [monetary policy statement]?’’ he said.

The June quarter inflation numbers, with consumer prices topping the RBNZ’s guess at 7.3%, blew away even the vaguest chance the central bank might contemplate easing off the interest rate brakes on the economy.

Mr Toplis said falling global fuel prices were likely to mean headline inflation falling before too long.

But more important is the strength of domestic inflation pressures — the socalled nontradables — such as rents, fees, rates and, above all, wages.

The RBNZ has a dual mandate from the Government — keep inflation in check and maximise ‘‘sustainable’’ employment.

By any measure, it has underachieved on the first and overdone it on the second, with the unemployment rate at close to record lows and wages rising at the fastest rate in more than a decade.

The RBNZ’s tone is expected to remain hawkish, with a repetition of a ‘‘resolute’’ determination to get inflation back under control, albeit with a nod towards the slowdown in the local and global economy.

That would mean continued tough talk and economic forecasts to match, notably the projection of where the OCR might reach, ASB chief economist Nick Tuffley said.

The RBNZ’s May forecasts implied the OCR being at 3.5% by the end of the year and possibly near 4% by the middle of next year, before the chance of rate cuts towards the end of 2024.

But Westpac acting chief economist Michael Gordon is picking the cash rate to hit 4% and stay there for some time, which would set up a tussle between the RBNZ and markets. — RNZ