RBNZ's Orr says committee isn't divided

On Wednesday, the MPC announced that for the first time since its inception in April 2019 it had been unable to reach a consensus.

The committee voted five to two in favour of increasing the official cash rate (OCR) from 5.25% to 5.5% with the two opposing being in favour of holding the OCR steady.

That surprised financial markets which had been expecting either a 25 basis point hike or a 50 point hike.
“On the division in the committee, the voting, there is no division. It's a committee decision,” Orr told parliament's finance and expenditure committee.

The debate in the committee had been between doing nothing and waiting to see how conditions unfolded and going immediately to 5.5% . The decision to raise the OCR by 25 basis points was “an extra bit of insurance,” Orr said.

Seymour had asked how the committee could be so certain that the OCR would be static through to the end of next year, “especially when you've got a divided committee.”

Orr said the committee expects the OCR to remain steady “until early next year. At that point, we may be able to start easing interest rates.”

The numbers in the monetary policy statement “are not forward guidance, its a projection. This is our best foot forward,” but the committee will “never say never” if it becomes necessary to move the OCR, he said.

The statement showed the OCR remaining at 5.5% until September next year, when it will fall to 5.4%, and that it will fall to 3.3% by June 2026.

Orr stressed several times that monetary policy takes between 18 months and two years to fully flow through the economy.

“We agreed the level of interest rates is constaining spending and inflation pressures and that the OCR will need to remain at a restrictive level for the foreseeable future to ensure that consumer price inflation returns to target while supporting maximum sustainable growth.”

National Party finance spokeswoman Nicola Willis asked why the committee is so certain it won't need to hike rates further, noting that former RBNZ governor and former National leader Don Brash has told Radio NZ that he was surprised at the confidence.

Orr said what is giving the committee confidence “is the level of restrictiveness of interest rates. They're well above what we would call neutral” and that GDP, inflation and inflation expectations, as well as asset prices and house prices in particular, are now lower than the central bank had previously expected.