The RBNZ Governor, Adrian Orr, stated that the Reserve Bank of New Zealand has taken a firm stance on its tightening policy and expects to raise interest rates for the foreseeable future to keep inflation expectations in check.
In an interview on Monday, Orr confirms a deliberate tightening attempt. He also claims that there have been conspicuous warnings by the RBNZ of rate hikes in the months to come.
RBNZ Lifts Cash Rate to a Two Decade High
New Zealand champions the monetary tightening policy on a global scale. This is in response to rising inflation, proving to be the new normal. The RBNZ lifted the official cash rate to 1.5% in the previous week, its highest in over two decades.
The central bank governor maintained that the action to increase the cash rate was not to suggest that the tightening policy endpoint would be higher. Instead, he says it was in response to catching up with rate increases. There had already been a prediction earlier in the year by RBNZ that OCR would reach its highest point of 3.25% by the end of next year.
He said it was more about responding quickly than just speculating about more things to be done. And that action needed to be taken so that people could be aware of their intentions.
New Zealand attained a 5.9% inflation rate (a 30 year high) towards the end of last year. A Bloomberg survey suggests that that figure could rise to 7.1% in the first quarter report of 2022, set to be released this week.
Adrian Orr further says that the committee in charge of tightening or loosening is working to balance the effects of hampering the economy against the consequence of rising inflation anticipation. This is because an abnormally increased rate will lead to the threat of reduced economic activity beyond what is expected. While moving more slowly than usual may lead to inflation anticipation getting away from them.
Furthermore, Orr claims that the monetary committee is currently more concerned with risk balancing between these factors than containing inflation anticipation in the medium term, knowing the long term cost of allowing inflation anticipation to leave them behind.
NZDUSD opened up on Monday at 67.32 after four days of decline.
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