Ex-RBNZ’s Spencer: Central bank could take OCR to 2% by Q3 2022

The Reserve Bank of New Zealand (RBNZ) is likely to kick off its rate hiking cycle from August, then hike again in November and take its official cash rate (OCR) to 2% or more by the third quarter of 2022, MNI reported, citing comments from the former RBNZ Assistant Governor Grant Spencer.

Additional takeaways

“The speed of the NZ economy's rebound has been a surprise and it was now overheating.”

"We also have very strong demand pushing restricted supply.”

“Inflation pressures will continue to be robust because of New Zealand's continued isolation as a result of the pandemic.”

On interest rates, there was a "real risk of getting behind the curve" if the bank did not hike rates in August.

"The sensible thing to do would be to have a one-notch increase at the next meeting because they will try for a soft landing and that will require an incremental approach.”

“A stronger New Zealand dollar was another risk to the economy as it would impact negatively on the terms of trade.”

“The RBNZ would soon end its Funding for Lending program, which has offered a cheap funding source for commercial banks.”

"If they remove it there may be some upward pressure on bank funding costs. A soft landing for the rampant property market was another challenge for the RBNZ.”

"There is a risk of house price reductions, but I don't see a collapse, and without tightening that would increase the risk of a hard landing in that market."