The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee has voted to maintain its official cash rate (OCR) at 2.75%, largely because members wanted to observe economic conditions before adjusting interest rates.
But the decision was not unanimous. Four Committee members voted to hold the OCR at 2.75% and three voted to raise it to 3%, RBNZ said on 28 October. RBNZ Governor Anna Breman supported holding the OCR at 2.75%.
“All [Committee] members agreed that tighter monetary policy is likely to be required, but remains conditional on the economic outlook,” RBNZ said.
Three members voted to lift the OCR by 0.25 percentage points to address the risk of inflation becoming entrenched in price-setting processes, according to RBNZ. They believed that raising the OCR could reduce the risk of future increases.
But four others, including Breman, voted to hold the OCR because they wanted to observe economic conditions. They believed that the Committee’s previous OCR decisions reduced the need for an immediate rate hike.
“Higher fuel prices [haven’t] caused … indirect effects onto other price categories to the same extent as we expected. In addition, inflation expectations have remained well anchored; wage growth is actually below what we think is consistent with returning inflation to target,” Breman told reporters.
Forecasters and businesses’ two-year forward inflation expectations fell to 2.34% in September, down from 2.53% in May, but up from 2.28% a year ago, according to the RBNZ’s Survey of Expectations.
Annual consumer inflation stood at 3.7% in September, down from 4.1% in June, according to Stats NZ. Petrol and electricity prices rose 19% and 9.3% on the year, respectively, in September, Stats NZ data show.
By Avinash Govind