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OCR up: What the RBNZ said

The Reserve Bank says more tightening is needed as it increases the official cash rate to 1%.

Wednesday, February 23rd 2022, 2:05PM 4 Comments

The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 1 percent. The Committee also agreed to commence the gradual reduction of the Reserve Bank’s bond holdings under the Large Scale Asset Purchase (LSAP) programme - through both bond maturities and managed sales.

The Committee agreed it remains appropriate to continue reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment.

The level of global economic activity is generating rising inflation pressures, exacerbated by ongoing supply disruptions. The pace of global economic growth has slowed however, due to the general elevated uncertainty created by the persistent impacts of COVID-19, and clear signals that monetary conditions will tighten over the course of 2022.

In New Zealand, underlying economic strength remains in the economy, supported by aggregate household and business balance sheet strength, fiscal policy support, and continued strong export returns. However, some short-term economic disruption is expected given the current growing COVID-19 health challenge. The high vaccination rates across New Zealand will assist significantly to reduce this disruption.

Economic capacity pressures have continued to tighten. Employment is now above its maximum sustainable level, with a broad range of economic indicators highlighting that the New Zealand economy continues to perform above its current potential.

Headline CPI inflation is well above the Reserve Bank’s target range, but will return towards the 2 percent midpoint over coming 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 movements risk generating more generalised price rises, especially given the current domestic capacity constraints.

The Committee agreed that further removal of monetary policy stimulus is expected over time given the medium-term outlook for growth and employment, and the upside risks to inflation.

Tags: OCR

« Heartland Bank raises profitsHome mortgages will not rise at the same rate as the OCR – CoreLogic »

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Comments from our readers

On 23 February 2022 at 4:41 pm Tang Shing-bor said:
A temporary uptick. Maybe a couple more then the carnage will cause them to re-valuate and down they'll head again.
On 23 February 2022 at 6:18 pm Winka said:
Sadly Tang......this is something that is going to be with us for a few years, and is only the beginning of a negative phase.
People can choose to be the eternal optimist however, there are a number of factors to support my views.
The huge amounts of funds (DEBT) created by government in their response to the claimed C19 debacle is going to have to be repaid, and this will come at a cost.
The over-investment in housing is going to come 'home' to roost, and house prices will drop severely.

The mid to longer term diminished health effects of the vax will begin to take effect as people succumb exponentially over time, likely beginning this winter, and this is predicted to become a very serious problem, with many cases ending being terminal, and this phenomenon is going to 'adjust' the supply & demand ratio.

A higher number of people losing employment as an on-effect of enforced mandates (no jab no job) is going to reduce the number of house-buyers.

Roll-on effects from International downturns will see us here affected negatively.

Including the widely predicted stock market 'dives.'

But....I put this in writing "way" before todays announcement by the NZ Reserve Bank
In writing.
On 25 February 2022 at 11:29 am Murray Weatherston said:
Banks lend at a margin above their cost of funds. The floating rate is set off short term rates (the shortest of which is the OCR which is actually the daily rate RBNZ will lend to and borrow from the registered banks). Fixed term rates will be costed of the equivalent swap rates.

The last few years will, I believe, be recorded in history as a total aberration.

It is hard to see why in a longer term sense that the OCR should be miles below the current inflation rate. Even with this weeks 25bp rise the OCR is still only 1% which is miles below any estimate of the current inflation rate.

I think it was Irving Fisher that said the nominal interest rate should be inflation plus a positive margin - the real return has to be non-negative, otherwise why would anyone save.

The economy has held up well in these Covid Times, but really that is not surprising when Government has primed the fiscal pump to the extent of about 20% of GDP, and the RBNZ has printed money like a drunken sailor - they refuse to see the resulting low interest rates has been a primary cause of galloping house price inflation.

Their problem today is how to withdraw the big daily drug injection without collapsing the patient.

My pick is that current guesses of where interest rates will go (and by algebra mortgage rates) will undershoot - but nobody wants to be the organisation that says so. There's an old saying "you are far better to be wrong in the crowd than right alone"

And in todays woke world (which is really PC cubed) you have to be kind and you can't criticiise the authorities too hard.
On 25 February 2022 at 12:29 pm Andy the adviser said:
Well said Murray. We have been saying this for a long time, but the boffins in charge just don't seem to want to understand, nor learn from history.

When inflation is running at 7% plus, yet the best return we can get on savings is 1-2%, the only option IS to put your money into property (waiver - this is NOT financial advice).

The money market is all upside down at the moment. The OCR is far too low, the margin between the OCR and the bank rates is too high. And we STILL have an economic model based on GROWTH, instead of SUSTAINABILITY. We cannot keep growing with limited resources.

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Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora ▲5.43 ▲4.57 ▲5.58 ▲5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 6.05 6.15
TSB Special 4.79 ▼4.34 5.25 5.35
Unity 5.65 ▲4.80 ▲5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 16 May 2022 9:03am

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