Our take on the latest Monetary policy review (Wed 25 May 2022)
OCR raised by 50bp to 2.00%
Peak OCR of 3.95% now forecast
We forecast two back-to-back 50bp increases ahead
The key numbers...
- The Reserve Bank maintained its stronger stance on tightening monetary policy faster with a follow-up 50 basis point increase to take the official cash rate (OCR) to 2.0% in its May Monetary Policy Statement.
- The Reserve Bank now sees inflation staying slightly higher for longer too, with a peak inflation rate of 7.0%pa in mid-2022. It forecast inflation at the end of 2022 to be sitting at 5.5% (1.4 percentage points higher than forecast in February) but coming down to 2.6% by the end of 2023.
- The Bank's new OCR track is about 120 basis points higher at the end of 2022 than in the February Monetary Policy Statement, and shows a peak OCR of almost 4% in late 2023.
- The Bank noted that “it remains appropriate to continue to tighten monetary conditions at pace…” and that the Monetary Policy Committee “is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.
RBNZ to lift OCR “briskly” to overcome inflation
Official cash rate (OCR) forecasts, quarterly averages (Source: RBNZ)
...and our reaction
- The Reserve Bank has shifted its outlook towards a more aggressive pace of increases to the OCR to get inflation under control, with a view of lifting the OCR faster, sooner, to rein in rising prices.
- The economy is operating beyond its means, with a larger increase in the OCR needing to happen sooner to “act as a constraint on demand until there is a better match with New Zealand’s productive capacity.”
- Crucial in our view is the Committee’s statement that it will “maintain its approach of briskly lifting the OCR until convinced that monetary conditions were sufficient to constrain inflation expectations and bring consumer price inflation to within the target range. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.”
- This “brisk” approach is in sharp contrast to February, when the Bank’s expectation was that it could move in more balanced steps throughout 2022 and into 2023. The old stance was too slow to address inflation, and a more aggressive approach from the Bank now provides more options in the future to respond to changing circumstances – on the up- and downside.
- This more assertive approach will send a clear signal that the OCR will continue to rise at pace, and that businesses and households need to adjust their spending behaviours to account for higher interest costs. We forecast two more 50 basis point increases back-to-back in July and August.
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