New Zealand Raises Its Official Cash Rate

Wellington, Nov 24, : New Zealand’s Monetary Policy Committee voted Wednesday to increase the Official Cash Rate (OCR), to 0.75 percent.
According to Xinhua news agency, the committee agreed that it is appropriate to continue reducing monetary stimuli in order to maintain price stability and support maximum sustained employment.

 New Zealand Raises Its Official Cash Rate-TeluguStop.com

“The global economic activity is continuing to rise, supported both by accommodative fiscal and monetary policy settings and the relaxation of Covid-19-related health-restrictions.”The elevated uncertainty caused by the persistent virus has caused global economic growth to slow down,” the committee stated in a statement.

Global supply-chain disruptions are creating both cost pressures as well as production constraints, even though consumer demand is strong.

Globally, central banks face the challenge of discerning between temporary price increases and underlying sustained inflation pressures to determine the need for and timing of reductions in monetary policy stimulus.

As New Zealand transitions to the Covid-19 Protection Framework, New Zealand’s restrictions on public health are lessening.

The framework will allow for greater mobility of people and goods as well as services.It is expected that the Covid-19 virus, although manageable by health authorities, will spread more widely geographically.

However, it will be less dangerous for those who have been vaccinated.

The statement stated that these ongoing health uncertainties will affect household spending and business investment in the short-term.

Economic activity has been slowed sharply by the recent nationwide health-related lockdown, which included the longer restrictions in Auckland, Northland, and the Waikato.

The committee observed that, despite these lockdowns the underlying economic strength was supported by aggregate household balance sheet strength, fiscal support, and strong foreign returns.

The capacity pressures have continued their tightening.For example, the level of employment is now at its highest sustainable level.

A wide range of economic indicators show that the New Zealand economy continues its performance above its current potential.

Inflation headline CPI is expected to rise above 5 percent in the short term, before returning to the 2 percent midpoint over the next two year.

Inflation is likely to rise in the near term due to rising oil prices, rising transport cost and the effects of supply shortages.The statement stated that these immediate relative price shocks could lead to more generalized price increases due to current domestic capacity constraints.

The committee noted that further reductions in monetary policy stimulus are likely to be necessary given the medium-term outlook for inflation, and employment.

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