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New Zealand

Reserve Bank raises official discount rate to 4.75%

The Reserve Bank raised the official discount rate by 50 basis points to 4.75%.

Financial markets and most analysts assumed the following before the announcement. A rate hike of 50 basis points was most likelyThere are many warnings that while the damage caused by Cyclone Gabriel will give inflation a new leg, it will also increase the risk of a recession.

The Reserve Bank’s Monetary Policy Committee said it was too early to accurately assess the impact of Cyclone Gabriel on monetary policy.

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“The timing, scale and nature of funding for the government’s financial response have also not yet been determined,” it noted.

Current assessments say that prices for some commodities are likely to surge in the coming weeks, and economic activity could weaken more than previously expected.

Reserve Bank Governor Adrian Orr has released the bank's first monetary policy statement of the year against a backdrop of renewed economic uncertainty caused by Cyclone Gabriel.

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Reserve Bank Governor Adrian Orr has released the bank’s first monetary policy statement of the year against a backdrop of renewed economic uncertainty caused by Cyclone Gabriel.

Export earnings will also be adversely affected by the storm, it said.

But monetary policy is set with a “medium-term focus” and “looks at these short-term output fluctuations and direct price effects,” he said.

Banks said despite early signs of easing price pressures, core consumer price inflation remains too high, employment remains above maximum sustainable levels, and near-term inflation expectations remain high. He justified the rate hike by stating that it will continue to do so.

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Devon Funds’ Greg Smith was one of many who correctly predicted a 50bp rate hike.

The Reserve Bank has slightly adjusted its forecast for where future interest rates are headed.

We still expect OCR to peak at 5.5% later this year, but so far we don’t expect to hit that peak towards the end of the year.

Annual inflation is now forecast to peak at 7.3% in the March quarter, after November’s forecast of a rise to 7.5% in the December quarter turned out to be wrong.

However, we expect inflation to be a little more tenacious, falling to only 4.2% by the March quarter 2024 instead of 3.8%.

Kiwibank chief economist Jarrod Carr told the central bank: Pausing interest rate hikes We leave the OCR at 4.25% to account for the expected economic shock from the cyclone.

Nick Tuffley, ASB’s chief economist, agreed that in some cases the OCR was left unchanged due to extreme circumstances, and the full extent of the damage caused by the cyclone is not clear.

But he said the effects of the weather disaster would only make the Reserve Bank’s job of containing inflation more difficult.

The Reserve Bank said it was too early to assess the impact of Cyclone Gabriel on monetary policy.

Christel Yardley/Staff

The Reserve Bank said it was too early to assess the impact of Cyclone Gabriel on monetary policy.

Capital Economics analyst Marcel Tyriant said the bank’s comments had highlighted the cyclone, but the OCR reset didn’t seem to tip the balance in either direction.

“Banks are less hawkish than November, except for the cyclone,” he said.

Tim Carins, owner of real estate firm Century 21, said rising interest rates will put a lot of pressure on many homeowners this year.

“It’s far from ideal, but it’s important to keep interest rates in perspective.

Historically, interest rates of 6% to 7% have been the historical average for New Zealand borrowers, and most fixed rates at major banks are now at that level, he said.

https://www.stuff.co.nz/business/131300368/reserve-bank-hikes-official-cash-rate-to-475.html Reserve Bank raises official discount rate to 4.75%

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