ASB predicts another 50 basis point official cash rate hike next month

PHOTO: ASB. SUPPLIED

ASB predicts the official cash rate (OCR) will increase by another 50 basis points next month after the Reserve Bank hiked it by that amount last week.

The Reserve Bank (RBNZ) confirmed on Wednesday the OCR would rise to 1.5 percent, saying the hike was needed to “reduce the risks of rising inflation expectations” and provide “more policy flexibility ahead in light of the highly uncertain global economic environment”.

ASB, in its Economic Weekly report on Tuesday, said the RBNZ was clearly worried about short-term inflation.

“Our expectations have changed with the news of the 50bp hike. We are now anticipating a 50bp OCR hike in May, followed by a sequence of 25bp hikes to a 3.25 percent OCR peak in early 2023.”

Before the RBNZ’s announcement on Wednesday, ASB forecast the OCR’s peak in early 2023 would be 2.75 percent.

ASB said the RBNZ faces a hard balancing act.

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“Either they tighten too aggressively and create a ‘sharper than needed slowdown in economic activity’ or they do not act quick enough and face the longer-run costs of entrenched high inflation and inflation expectations,” the Economic Weekly report said.