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Friday, March 29 2024
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New Zealand hikes official cash rate

Monetary Policy
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Wellington: New Zealand’s Monetary Policy Committee agreed on Wednesday to raise the Official Cash Rate (OCR) to 0.75 per cent.

The committee agreed it remains appropriate to continue reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment, reports Xinhua news agency.

“The level of global economic activity continues to rise, supported by accommodative monetary and fiscal policy settings, and the relaxation of Covid-19 health-restrictions. The pace of global economic growth has ebbed however, due to the elevated uncertainty created by the persistent virus,” the committee said in a statement.

Global supply-chain disruptions are causing both cost pressures and constraints on production, at a time when consumer demand remains strong.

Central banks globally face the challenge of distinguishing between transitory price increases and underlying sustained inflation pressures to assess the need for, and timing of, reductions in the level of monetary policy stimulus.

New Zealand’s public health restrictions are easing as the country transitions into the Covid-19 Protection Framework.

The framework will enable greater mobility of people, and goods and services. With the easing of restrictions, it is anticipated that the Covid-19 virus will become more widespread geographically, albeit manageable for health authorities and less harmful for those vaccinated.

However, household spending and business investment will be dampened in the near-term by these ongoing health uncertainties, the statement said.

The recent nationwide health-related lockdown, the more prolonged restrictions in Auckland, Northland and the Waikato, and the continued Level 2 restrictions elsewhere, resulted in a sharp contraction in economic activity.

Despite these lockdowns, the committee noted that underlying economic strength remains supported by aggregate household and business balance sheet strength, fiscal policy support, and strong export returns.

Capacity pressures have continued to tighten. For example, employment is now above its maximum sustainable level. A broad range of economic indicators highlight that the New Zealand economy continues to perform above its current potential.

Headline CPI inflation is expected to measure above 5 percent in the near term before returning towards the 2 per cent midpoint over the next two years. The near-term rise in inflation is accentuated by higher oil prices, rising transport costs and the impact of supply shortfalls. These immediate relative price shocks risk generating more generalized price rises given the current domestic capacity constraints, the statement said.

The committee noted that further removal of monetary policy stimulus is expected over time given the medium term outlook for inflation and employment.

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