The country’s official cash rate (OCR) has been raised by 0.5% to 2% by the Reserve Bank’s Monetary Policy Committee.
Members of the committee say global economic activity is generating rising inflation pressures, exacerbated by ongoing supply disruptions driven by both covid-19 and the Russian invasion of Ukraine. It says the invasion continues to cause “very high prices for food and energy commodities”.
“The pace of global economic growth is slowing,” says the committee. “The broad-based tightening in global monetary and financial conditions is acting to slow spending growth, accentuated by the high costs of basic food and energy staples.
“European geopolitical uncertainty is also weighing heavily on business confidence and investment intentions worldwide. Likewise, covid-19 restrictions in significant regions of China are exacerbating supply chain disruptions and adding cost and complexity to trade.
“In New Zealand, underlying strength remains in the economy, supported by a strong labour market, sound household balance sheets, continued fiscal support, and a strong terms of trade. However, headwinds are strong.
“Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence. Asset prices, in particular house prices, have also declined, reflecting in part higher mortgage interest rates and increased supply of housing.”
Jen Baird, Real Estate Institute CEO, says: “Today’s 50 basis points increase to the OCR and the likelihood of further increases in the months to come has been well signalled and comes as no surprise. It takes this headline rate to its highest since September 2016.
“The increase in interest rates over the past few months continues to impact the property market. Higher mortgage rates alongside tightened lending criteria and LVR’s have considerably changed the dynamics within the property market seeing demand soften nationwide.
“The Government’s budget announcement last week delivered increases to the cap on the price of property eligible for a First Home Grant and the removal of caps for First Home Loans — providing some welcome relief and greater choice to first home buyers. While we may see first home buyers reconsider their options in the market, they will now be factoring in further interest rate rises,” concludes Baird.
Members of the committee agreed that a higher level of the OCR is necessary to ensure annual consumer price inflation returns to within its target range over the next two years. They agreed this was also consistent with ensuring employment remained near its maximum sustainable level.