Just a single shot: Reserve Bank lifts official cash rate 25 basis points

The Reserve Bank has chosen to only put up the official cash rate by 25 basis points to 0.75 per cent.

But there was a warning for borrowers, with the bank indicating it now saw the OCR rising to 2.6 per cent by the end of 2023, as opposed to only climbing to 2.1 per cent by March the following year.

Bank analysts and economists had been expecting either a 25bp rise, or a ‘double hike’ of 50bp, as the central bank seeks to tread a fine line keeping a lid on inflation without turning sentiment too negative.

While opting for the lesser rate rise, the Reserve Bank said further removal of monetary policy stimulus was expected over time “given the medium term outlook for inflation and employment”, tipping that inflation would temporarily rise above 5 per cent before falling back.

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The bank’s monetary policy committee said it discussed how fast interest rates need to be increased, and said there was “uncertainty about the resilience of consumer spending and business investment as the country adapts to living with the Covid virus in the community”.

It is forecasting a 1.4 per cent dip in GDP in the year to March, as a result of Covid restrictions, but for inflation to peak at 5.7 per cent at the end of this year and early next year.

The New Zealand dollar retreated 0.2 US cents to US69.3 cents immediately after the announcement, reflecting the bank’s decision not to raise by 50bp.