Reserve Bank lifts OCR

PHOTO: File image: Governor of the Reserve Bank Adrian Orr. Photo: RNZ / Dom Thomas

The Reserve Bank (RBNZ) has stepped up the battle against inflation with an increase of half of a percentage point in the Official Cash Rate to 1.5 percent, with a warning that further rises are coming.

The rise had been expected and it is the first time since early 2000 that the central bank has raised by such an amount.

The Monetary Policy Committee said the RBNZ needed to move more quickly to get inflation – which is at a 30 year high – back to its 2 percent target.

“Moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations. A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment,” it said in a statement.

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Economists described the decision as a toss of the coin between 25 and 50 basis points, as the central bank confronts inflation expected to go past 7 percent next week, a strong labour market with record low unemployment, a slowing housing market, and prices and supply chains disrupted by Omicron and the Ukraine war.

“The level of global economic activity continues to generate rising inflation pressures, exacerbated by ongoing supply disruptions in large part driven by Covid-19.