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Summarised by Centrist
The Reserve Bank held the OCR at 2.25% on Wednesday, saying its decision “balances the potential benefits of responding pre-emptively to the risk of higher medium-term inflation against the cost of unnecessarily stifling the economic recovery”, while making clear that “decisive and timely increases in the OCR would be required” if core inflation, wages and expectations fail to stay contained.
Governor Anna Breman later confirmed the committee had discussed hiking at this meeting, but said members were “not close” and that there was “definitely no discussion or strong advocates for hiking at today’s meeting”. Even so, she said rate increases remained on the table if near-term inflation started becoming embedded in the medium-term outlook. The official statement struck the same tone, saying the committee was “vigilant to any generalised inflationary pressure and stands ready to act to return inflation to its medium-term target”.
The Bank’s inflation alarm was already being scrambled by events within hours of the decision. Breman said the forecast for 4.2% inflation in the June quarter “could be on the higher side” because “oil prices falling today” had changed the picture.
She also said that forecast had been based on oil and fuel assumptions from the day before. Finance Minister Nicola Willis drove the point home, saying some of the information used in the OCR decision was “already out of date” given the fast-moving geopolitical situation.
