Official rate tipped to sit at 2.5%
Economists are predicting a third consecutive half-percentage point hike to the Official Cash Rate (OCR) on Wednesday.
The OCR is currently sitting at 2.00% after the Reserve Bank of New Zealand (RBNZ) hiked the interest rate by 0.5% in May.
The RBNZ was one of the first among developed nations to begin withdrawing pandemic stimulus last year and its decision to accelerate the pace of interest rate increases this year foreshadowed what would come from its counterparts in Australia, the US and Canada.
“New Zealand is a lot more interesting than it normally is for people offshore,” said ANZ Bank chief economist Sharon Zollner (pictured above left).
“They see New Zealand as the canary in the coal mine.”
Read more: BNZ, Westpac slash two-year rates
The RBNZ is predicted to be the first of its peers to lift its benchmark rate above a neutral level, which it deems to be 2%, applying the brakes on an economy with a record amount of household debt.
While economists suggest further rate hikes appear necessary to regain control of inflation, talk of a possible recession next year could reduce the amount of tightening the bank ultimately delivers.
“There’s no doubt in our mind that people are watching New Zealand to give them an insight into what’s likely to happen in their respective jurisdictions,” said Bank of New Zealand head of research Stephen Toplis (pictured above middle).
“We know that from the amount of queries we’re getting from offshore investors trying to gauge what’s happening here and what its implications are for the rest of the world.”
Read more: Mortgage rates aren't going to get as high as expected – broking chief
Bloomberg economist James McIntyre (pictured above right) said the RBNZ might think twice about fully delivering on its rate-hike threats.
“The risk is that it could shift monetary policy back into accommodative territory much sooner than expected. This might mean other central banks may take note,” he said.
For now, other central banks are following New Zealand’s aggressive hike lead.
The Reserve Bank of Australia raised its rates by half a percentage point for a second consecutive month on July 05, taking its OCR to 1.35%.
The US Federal Reserve is forecast to move by at least another 50 basis points after a 75-basis point hike in June, and some officials at the European Central Bank were suggesting rate hikes to give lift off to its tightening cycle.
