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RBNZ Signals More Gradual Rate Hikes Amid Lower Inflation

Key Takeaways

* The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by 50 basis points on Wednesday, August 16, 2023. * This increase brings the OCR to 4.75%, the highest level since December 2008. * The RBNZ indicated that it expects to continue raising rates in the coming months but at a slower pace.

Uncertainty Remains

* The RBNZ acknowledged that global inflation has eased but noted that it remains elevated in some parts of the services sector. * The central bank also expressed uncertainty about how quickly inflation will subside. * As a result, the RBNZ has adopted a more cautious approach to monetary policy.

Gradual Approach

* RBNZ Assistant Governor Karen Silk stated that the central bank intends to raise rates more gradually in the future. * This shift in stance reflects the RBNZ's desire to balance the need to combat inflation with the risk of slowing economic growth. * The RBNZ's more gradual approach is consistent with the recent trend of central banks around the world.

Inflation Expectations

* The RBNZ's latest Monetary Policy Statement includes an updated set of inflation projections. * The central bank now expects inflation to average 5.7% in the December 2023 quarter, down from its previous forecast of 6.3%. * However, inflation is still expected to remain above the RBNZ's target range of 1-3% until mid-2023.

Conclusion

* The RBNZ's decision to raise rates by 50 basis points signals its continued commitment to combating inflation. * However, the central bank has also indicated that it intends to take a more gradual approach to future rate hikes. * This shift in stance reflects the RBNZ's desire to balance the need to bring inflation under control with the risk of slowing economic growth.