The last time we heard from the RBNZ was back in November last year, so this was an anticipated meeting. Heading into the meeting, the NZD found buyers as expected on the expectation that the RBNZ would hike by 25bps. There was an outside chance of a 50bps hike as high house prices, soaring inflation, record unemployment and a tight labour market all increased those expectations.

The decision

The RBNZ hiked rates by 25bps for a third consecutive meeting. However, many members saw the decision as finely balanced between a 25bps and a 50 bps rate hike. This was a hawkish bias. Furthermore, the central bank’s tone was more hawkish as it was prepared to move in larger increments if necessary. This hawkish tilt was seen in the projections:

• Official cash rate at 1.49% in June 2022 (previously 1.51%)
• Official cash rate at 2.57% in March 2023 (previously 2.30%)
• Official cash rate at 2.84% in June 2023 (previously 2.40%)
• Official cash rate at 3.35% in March 2025

House prices

The RBNZ note that house prices are starting to peak as house prices fell in Dec 2021 and Jan 2022. Higher mortgages, more homes being built, stricter lending controls, and investor policy changes are all slowing the recent surge in house prices. The RBNZ now project that house prices will continue to fall and that the peak has past.

Inflation

The RBNZ noted that inflation is expected to be higher than it was in November’s projections and it is more broad-based than expected.

The RBNZ recognise that higher interest rates will be needed to make sure inflation is kept in check and that they achieve as much employment as possible without increasing inflation. This should keep the NZDJPY pair bid on dips as there is a central bank divergence now in place between the RBNZ and the BoJ.