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

Key Quotes

“The Reserve Bank of New Zealand (RBNZ) decided to raise its official cash rate (OCR) by 75bps to 4.25% at its final meeting of the year. Today’s hike follows five consecutive 50bps rate hikes and is the largest since the New Zealand central bank introduced the OCR in 1999 and takes the benchmark to its highest level since 2008.”

“The RBNZ also signalled further tightening ahead, and now sees the OCR peaking at 5.5% in 3Q23, up from a previous peak of 4.1%, before falling in 4Q24, even as it forecasts a recession next year. It also sees the economy contracting for four straight quarters starting from 2Q23; and sees annual inflation climbing to 7.5% in the final quarter of this year from 7.2% currently.”

“There is a three-month gap between today and the next monetary policy decision on 22 Feb. Given how the RBNZ is typically pre-emptive in nature, frontloading now would be more ideal than waiting till then. We had previously highlighted that the risks remain skewed towards more rate hikes, and thus an OCR higher than our 4% forecast. We now think that rates will peak closer to 5.0%, before the RBNZ pauses in the current tightening cycle.”

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