OPINION
Market Rating Before FOMC MeetingJan 31
Reserve Bank of New Zealand continues to hike Cash Rates
The global economy, which has largely recovered from the devastating effects of the pandemic, is facing inflationary pressures due to supply and demand instability.
Against high commodity prices in international markets, supply bottlenecks due to the pandemic and inflationary pressures strengthened by the delayed demand, central banks of developed and developing countries entered a tightening trend with relatively different opinions. At this point, the Reserve Bank of New Zealand (RBNZ) is among the countries that made the first rate hike during the pandemic period.
After 8 years, RBNZ had increased the official cash rate by 25 bps in each of October and November 2021 meetings to 0.75 percent.
Today, holding the first meeting of 2022, RBNZ decided to continue the gradual reduction of its large-scale asset purchase program (LSAP), raising the OCR by another 25 basis points to 1.00 percent, in line with market expectations.
Pointing out that the economic activity, supported by high aggregate demand conditions and continued strong export yields, followed a resilient course, the Reserve Bank pointed out the rise in the number of cases due to Covid-19 and noted that there may be short-term disruptions in some sectors, but high vaccination rates will help recovery significantly.
Emphasizing that employment continues to stay above the current potential of New Zealand economy, the Bank further stated that the headline CPI inflation is above the target range, but that it will return to the midpoint 2 percent. “The near-term rise in inflation is accentuated by higher oil prices, rising transport costs, and the impact of supply shortfalls. These immediate relative price movements risk generating more generalized price rises, especially given the current domestic capacity constraints,” the RBNZ further noted.
It also noted that views of the Committee Members that more tightening of monetary policy is needed, given the medium-term outlook for growth and employment and the upside risks to inflation.
NZDUSD had started the third trading day of the week at 0.6734 and the pair hit 0.6793, the highest level of the last 30 days, following the decision.
Against high commodity prices in international markets, supply bottlenecks due to the pandemic and inflationary pressures strengthened by the delayed demand, central banks of developed and developing countries entered a tightening trend with relatively different opinions. At this point, the Reserve Bank of New Zealand (RBNZ) is among the countries that made the first rate hike during the pandemic period.
After 8 years, RBNZ had increased the official cash rate by 25 bps in each of October and November 2021 meetings to 0.75 percent.
Today, holding the first meeting of 2022, RBNZ decided to continue the gradual reduction of its large-scale asset purchase program (LSAP), raising the OCR by another 25 basis points to 1.00 percent, in line with market expectations.
Pointing out that the economic activity, supported by high aggregate demand conditions and continued strong export yields, followed a resilient course, the Reserve Bank pointed out the rise in the number of cases due to Covid-19 and noted that there may be short-term disruptions in some sectors, but high vaccination rates will help recovery significantly.
Emphasizing that employment continues to stay above the current potential of New Zealand economy, the Bank further stated that the headline CPI inflation is above the target range, but that it will return to the midpoint 2 percent. “The near-term rise in inflation is accentuated by higher oil prices, rising transport costs, and the impact of supply shortfalls. These immediate relative price movements risk generating more generalized price rises, especially given the current domestic capacity constraints,” the RBNZ further noted.
It also noted that views of the Committee Members that more tightening of monetary policy is needed, given the medium-term outlook for growth and employment and the upside risks to inflation.
NZDUSD had started the third trading day of the week at 0.6734 and the pair hit 0.6793, the highest level of the last 30 days, following the decision.
