Our take on the latest Monetary policy review (Wed 14 Apr 2021)
No change in monetary policy
Inflation expected to rise above 2%pa
Change in remit hasn't changed decision-making
The key numbers...
- The Reserve Bank left monetary settings unchanged today as expected, stating that current settings need to be maintained to get inflation and employment back to target levels.
- The Bank noted that December’s GDP result was weaker than expected, and that economic activity would remain subdued and variable.
- Inflation is expected to rise above 2%pa in 2021, driven by supply chain disruptions and oil price rises, but these pricing pressures are seen as temporary, and higher trend inflation and employment is still a way off.
- The Bank did note that higher inflation, if sustained, could increase future inflation expectations, and that these interactions will be monitored closely.
Inflation to spike higher
Inflation, annual % changes, Infometrics forecasts
...and our reaction
- The Bank reinforced that “it would not remove monetary stimulus until it had confidence that it is sustainably achieving” its objectives and that “meeting these requirements will necessitate considerable time and patience.”
- The Bank’s remains committed to its preference of potentially overstimulating rather than understimulating the economy, thereby dampening speculation of any possible tightening in settings any time soon.
- Although the Monetary Policy Committee has a new remit, it was at pains to highlight that its monetary policy objectives remain unchanged. The Bank acknowledged that although current interest rates were partly a driver of higher house prices, there were other causes too, and “ongoing stimulatory monetary policy” is still needed to ensure the Bank’s core targets are met.
- We still don’t see a change in monetary policy settings until early 2023, unless the economic climate deteriorates significantly, which would necessitate further stimulus.
Latest updates
Premium
Monetary policy review
OCR up for first time in three years, as expected
Wed 8 Jul 2026
2.5% Official cash rate from 2.25%
Inflation now expected by the Bank to peak at 3.9%pa
Further rate rises likely but uncertainty about the timingPremium
Monetary policy review
Split decision keeps OCR at 2.25% for now
Wed 27 May 2026
2.25% Official cash rate unchangedCasting vote made by Governor with a 3-3 vote split among Committee membersRBNZ forecast OCR to reach 3% by end of 2026Monetary policy review
Reserve Bank holds at 2.25%, but watches vigilantly
Wed 8 Apr 2026
2.25% Official cash rate unchangedBank places more emphasis on potential inflationary risks4.2% Annual inflation forecast to accelerate by June this yearMonetary policy review
OCR on hold, but set to lift slightly quicker
Wed 18 Feb 2026
2.25% Official cash rate (OCR) unchangedDec-26 qtr First OCR rise now expected a quarter earlier than last MPS
Sep or Oct Financial markets picking for the first increase