The RBNZ increased the OCR by 50 basis points to 1.5% – to someone from three years ago that level might not sound strange, but just take a look at this 10 year government bond rate track. Highest 10 year rate since 2017 and, given when the cash rate is, an indication that higher average rates are expected in the future.
The last time there was a 50bp increase was May 2000. If you want to understand what was going on there take a look at inflation and the exchange rate during that period – a drop in the dollar was stimulating activity while inflation was high and climbing, so the Bank responded.
The exchange rate isn’t doing that now, but the world (and NZ) opening up post-COVID is filling that role – while core inflation is high, and headline inflation is at levels a lot of people have not seen before. In this way, the Bank is tightening – makes sense, and I trust they’ve worked it all though.Read more