RBNZ raises rates, says they’ll remain “restrictive” for foreseeable future

The Reserve Bank of New Zealand (RBNZ) has made another increase to the official cash rate (OCR), taking it from 5.25% to 5.50% in May.

The RBNZ slashed the OCR to 0.25% in 2020, as an emergency response to the pandemic, in what was always going to be a temporary move. Since 2021, the RBNZ has steadily increased the OCR, partly to return it to a ‘normal’ level and partly to tame inflation.

The first goal has been achieved, but the jury is still out on the second.

In a statement announcing the May monetary policy decision, the RBNZ confirmed it was aiming to reduce inflation to its target range of 1% to 3%. “The OCR will need to remain at a restrictive level for the foreseeable future” to achieve that goal, the statement said – but without adding whether more rate rises would be needed or if this would be the last.

Inflation remains high, but is trending down

Five members of the Monetary Policy Committee voted to raise the OCR, while the other two voted to keep it on hold, according to the statement.

The reason for that discord was because the RBNZ was unclear whether the OCR needed to increase further for inflation to return to its target range.

Inflation shot up from 1.5% in the March 2021 quarter to 7.3% in the June 2022 quarter. Since then, inflation has slightly fallen:

• Sep. 2022 = 7.2%.
• Dec. 2022 = 7.2%.
• Mar. 2022 = 6.7%.

“In New Zealand, inflation is expected to continue to decline from its peak and with it measures of inflation expectations. However, core inflation pressures will remain until capacity constraints ease further,” the statement said.

Committee members discussed what evidence they would need to see “in coming quarters” to conclude the OCR was sufficiently high. That included “a moderation in inflation and inflation expectations, a continued slowing in household spending growth, and a continued moderation in global inflationary pressure.”

I’ll help you crunch the numbers

While it’s unclear whether interest rates have peaked or will increase further, the RBNZ has made clear that rates will “remain at a restrictive level for the foreseeable future”.

So it’s important to budget accordingly if you’re planning to buy or already own a property.

Get in touch if you’d like to enter the market or check if your home loan is still competitive.