Economists say the Reserve Bank has “clearly changed tack” with latest statement
The Reserve Bank is halting its Large Scale Asset Purchase (LSAP) programme by 23 July, a year earlier than expected, and has kept the OCR at its current level of 0.25% in its latest Monetary Policy Review.
Commenting on its decision, the Reserve Bank said that the global economic outlook has “continued to improve”, and so it has agreed to reduce the stimulatory level of monetary settings to meet its objectives over the medium term.
“Recent data indicate the New Zealand economy remains robust despite the ongoing impact from international border restrictions,” the Reserve Bank said in its statement.
“Aggregate economic activity is above its pre-COVID-19 level.
“The Committee noted that medium-term inflation and employment would likely remain below its Remit objectives in the absence of some ongoing monetary support. However, the Committee agreed that the level of monetary stimulus could now be reduced to minimise the risk of not meeting its mandate.”
ASB chief economist Nick Tuffley said the Reserve Bank has “clearly changed tack” and moved towards reducing monetary stimulus, and ASB is now predicting an OCR increase in August. He said every OCR decision from now should be considered “live.”
Kiwibank chief economist Jarrod Kerr said the Reserve Bank’s next move is “almost certainly a rate hike,” with the timing looking to be “much earlier” than what was signalled six weeks ago.
“The RBNZ is looking to reduce stimulus, by stopping the LSAP programme early, and talking about talking about rate rises,” Kerr said.
“The next move is almost definitely going to be a hike, unless of course COVID strikes us hard, again.”
“Today’s message is consistent with a central bank juggling near term inflation pressures and long term deflationary forces,” he added.
“A rate hike in November is a definite maybe, although November still feels too early to us.
“From a policy perspective, it’s easy to be too early, and there’s not a great deal of risk to being a little late. And housing affordability must be addressed with supply, not demand measures. Otherwise you’re just seen to do something, rather than actually tackling the problem.”
