Reserve Bank (RBNZ) Governor Adrian Orr says the central bank ultimately not lifting the Official Cash Rate (OCR) as high as its near 4% forecast in the current tightening cycle is "a very plausible outcome."
On Wednesday the RBNZ increased the OCR by 50 basis points to 2%, and forecast it will rise as high as 3.9% by June of next year.
However, in an interview on Bloomberg TV, Orr was asked if it was possible the OCR peak could be significantly lower, 3.5% or even lower, because the RBNZ successfully slows the economy.
"That is a very plausible outcome. That would mean that we have to do less work to get the same outcome we're after, which is to have inflation return back to that 1% to 3% target range," Orr told Bloomberg.
"Likewise there are plausible stories where inflation expectations become unanchored and more persistent and that means there's even more work to do for us in the future. So we need to balance those two stories."
"Our central projection is one where we achieve our inflation [target] with interest rates only being modestly above what we would consider a neutral level, and holding it there for a relatively brief period really over the next 12 months or so. And then over time, as we get that better balance, we can take interest rates more back to neutral," Orr said.
"The biggest thing that has changed in recent times is our own risk appetite. We believe that the worst outcome that we most want to avoid is one where inflation expectations become persistent. And that means that we have to slow demand considerably and have unnecessarily high unemployment to get inflation back to that level. We'd far prefer to do what we're doing now, a significant stitch in time to avoid that process of having done too little too late."
Orr also told Bloomberg that the RBNZ's Monetary Policy Committee starts from scratch each time it reviews the OCR, every six weeks.
"We look at the data, how is it performing relative to what we were anticipating, and then recalibrating what we need to do. We've got time, it's a repeat game," he said.
24 Comments
is the intent of this article to lure FHB's into the housing market with the hope that interest rates may not rise as predicted?
Is it intentional that the comment from ORR "we intend to increase at PACE to contain inflation" was left out of the article?
https://www.bloomberg.com/news/articles/2022-05-26/orr-says-rbnz-to-hik…
I think many are simply out of their depth in the current situation, including Orr, and are simply doing their best to keep all options open in order to mitigate any potential criticism down the track. If you read back through Orr's recent comments, no matter what happens he pretty much has an "I told you so" or "You were warned".
I suspect come 2023, there will be many ducking for cover and looking for an out.
At least Orr makes easy reading.
None of the need of the past for so called experts "economists' to have to read between the lines looking for meaning.
Orr has removed the words 'nuanced' and 'subtle' from the financial vocabulary.
Now its hard left rudder or hard right rudder, but not in a straight line.
Well, when he started saying, 'The butterfly flapped its Wings,' https://www.interest.co.nz/public-policy/116102/rbnz-governor-takes-hea…,
that was pretty easy reading, as in a Children's book bedtime reading.
Next, he will be talking about, a 'Wonky Donkey recession, which smells really bad,'
Orr was asked if it was possible the OCR peak could be significantly lower, 3.5% or even lower, because the RBNZ successfully slows the economy.
That's a stupid but clever question,kind of pointless, of course it's possible. It depends on the data. I think what bloomberg is trying to do here is to find out how confidence Orr is toward his hawkish monetary policies at the moment.
Mr Orr is now trying to calm but even if it does not rise to 4% as predicted and rise by 3.5% is big.
Another point, if you doubt your own prediction of 4%, why predict.
We're you being truthful on Wednesday in RBNZ briefing or now.
What about prediction of house price fall
https://www.landlords.co.nz/article/976520328/reserve-bank-predicting-h…
Anyway now situation is beyond any manipulation as finally will be determine by fundamentals.
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