Reaction to OCR hike

The base interest rate is going up by 25 basis points to 0.75%

This was announced a short time ago by the Monetary Policy committee of the Reserve Bank (RBNZ).

There had been speculation that a bigger rise to the OCR would happen, but the balance of prediction pointed to the smaller rise and that is what happened.

The committee said the rise would reduce monetary stimulus so as to maintain price stability and support maximum sustainable employment.

It says the level of global economic activity continues to rise, but the speed of that growth has ebbed, due to elevated uncertainty created by the Covid-19 virus.

It adds global supply-chain disruptions are causing both cost pressures and constraints on production, at a time when consumer demand remains strong.

The RBNZ also says the easing of Covid-19 restrictions will mean the virus will become more widespread geographically, and household spending and business investment will be dampened in the near-term.

However, underlying economic strength remains strong, and headline inflation is expected to measure above 5 percent in the near term before returning towards the 2 percent midpoint over the next two years.

The Committee noted that further removal of monetary policy stimulus is expected over time given the medium term outlook for inflation and employment.

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