What needs to happen before the Reserve Bank takes its foot off the rate hike pedal?
The COVID-19 pandemic has been one of the toughest challenges we’ve ever faced, the likes of which has not been experienced since the Second World War. And it’s against this backdrop that the Reserve Bank is waging its fight against the steepest inflation since the 1980s, said Jarrod Kerr, Kiwibank chief economist.
Read more: Stubbornly high inflation expectations highlight the challenges RBNZ is facing – ANZ
Speaking in a new episode of interest.co.nz’s Of Interest Podcast, Kerr said he is expecting the Reserve Bank to raise the OCR by 75 basis points to 4.25% on Nov. 23.
“It is an aggressive move but the war on inflation is far from over,” Kerr told interest.co.nz. “The deceleration back towards price stability is going to take some time.”
By the next time RBNZ reviews the OCR on Feb. 22, the Kiwibank economist expects household consumption to significantly slow down, for further signs of a slowdown in global economic growth to emerge, as well as for inflation to “hopefully” cool down.
Read next: Global slowdown to hurt NZ economy
“By the end of next year, I think enough will have been done that we’ll actually be in a situation where central banks, including the Reserve Bank, will start to ease monetary policy into 2024,” Kerr told interest.co.nz. “So, more hikes, more pain near term, a cash rate of 5% which sees mortgage rates staying around current levels, if not a little bit higher. And then hopefully by the end of next year, the war on inflation will be won and we’ll see central banks starting to reduce interest rates.”
