With the Reserve Bank (RBNZ) expected to increase the Official Cash Rate (OCR) by up to 75 basis points on Wednesday it's worth noting something significant. The OCR has never been increased by that much in a solitary review before.
That's right. Since the OCR was introduced in 1999, the RBNZ has never increased it by more than 50 basis points at a time.
In contrast, the OCR has certainly been lowered by more, much more, than 50 basis points. Indeed, in December 2008 and again in January 2009, the OCR was cut by 150 basis points during the Global Financial Crisis, going from 6.50% to 3.50%.
With the the Consumers Price Index (CPI) hitting a 32-year high of 7.3% in the June quarter, only dropping slightly to 7.2% in the September quarter, and inflation expectations remaining high, it's seen as likely the RBNZ will hike 75 basis points on Wednesday, its final scheduled OCR review of 2022.
Following its introduction in March 1999 as the RBNZ's primary monetary policy tool, the OCR was first increased - by 50 basis points - in November 1999 to 5%.
But in its 23 years the OCR's never been increased in the way it has over the past 13-months. And that reflects the fact inflation has got so far above the RBNZ's target of keeping annual increases in the CPI between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint.
Since October 2021 the RBNZ has increased the OCR from just 0.25% to 3.50% now. That's 325 basis points of increases so far since the beginning of this 'tightening cycle', with 275 basis points coming in 2022 so far. That's already a record amount in one calendar year, with 50 basis points increases in each of April, May, July, August and October, and 25 basis points in February.
But a 75 basis points OCR increase, should it happen on Wednesday, November 23, would be unprecedented.
Prior to the introduction of the OCR the RBNZ used a variety of tools to target inflation. These included influencing the supply of money and indicating desired monetary conditions to the financial markets. You can see more on what the OCR is and how it works from the RBNZ here.
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