{"id":515261,"date":"2026-07-08T04:57:15","date_gmt":"2026-07-08T04:57:15","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/515261\/"},"modified":"2026-07-08T04:57:15","modified_gmt":"2026-07-08T04:57:15","slug":"why-anz-economists-are-upbeat-about-the-reserve-banks-ocr-increase","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/515261\/","title":{"rendered":"Why ANZ economists are upbeat about the Reserve Bank\u2019s OCR increase"},"content":{"rendered":"
The unemployment rate is high and consumer demand is weak, factors even the RBNZ concedes will limit the pass-through of oil shock inflation to the wider economy.<\/p>\n
In fact, the RBNZ lowered its inflation forecasts. It now expects the peak of oil shock inflation (in the second quarter) to be 3.9% instead of the 4.2% it forecast in May.<\/p>\n
That\u2019s still too high and well outside the RBNZ\u2019s mandated target of 1-3%.<\/p>\n
The RBNZ has the capacity to look through that supply shock spike in the short term.<\/p>\n
But the Monetary Policy Committee was clear about the uncertainty and inflation risk it sees in the medium term.<\/p>\n
\u201cSpare capacity in the economy is expected to limit firms\u2019 ability to pass on higher costs, meaning many businesses may need to absorb them in margins,\u201d the committee said.<\/p>\n
\u201cHowever, some firms may look to rebuild margins as demand recovers. If sustained, a lower exchange rate could also add to medium-term inflation pressures.\u201d<\/p>\n
Challenged about the need to hike now \u2013 with the labour market still so weak \u2013 Reserve Bank Governor Anna Breman emphasised the impact inflation had on growth.<\/p>\n
\u201cHigh inflation, as we\u2019ve had now for some time, erodes household purchasing power,\u201d she said.<\/p>\n
\u201cSo for households to feel like they can consume again and invest, we need to get inflation back.<\/p>\n
\u201cFrom our perspective, inflation is also hurting growth, and we need to get inflation back down to be able to also see stronger growth and a stronger labour market going forward.\u201d<\/p>\n
The Reserve Bank now has a single mandate to target inflation, as opposed to the previous dual mandate, which included unemployment.<\/p>\n
Breman acknowledged there was still a great deal of uncertainty about the immediate outlook \u2013 not least because of the ongoing volatility in the Middle East.<\/p>\n
But the message was clear, the journey back to a neutral rate has begun.<\/p>\n
The RBNZ considers neutral to be somewhere between 2.75% and 3.35%. Possibly skewing higher if fuel prices stay elevated.<\/p>\n
While the timing and final endpoint may still be undetermined, the path forward is not.<\/p>\n
As Infometrics chief forecaster Gareth Kiernan points out, rising rates are on the cards regardless of whether they are underpinned by higher external inflation or, preferably, by stronger domestic growth.<\/p>\n
\u201cThe need for less stimulatory monetary conditions is true, whether the bank is pushing against second-round prices from the recent fuel price shock, or removing stimulus from the economy as growth gets set to recover in the coming quarters,\u201d he said.<\/p>\n
To some extent, the move to a higher OCR reflects optimism from the RBNZ that the economic recovery will get back on track quickly.<\/p>\n
It forecasts a return to economic growth in the (current) September quarter and an acceleration of the recovery from there.<\/p>\n
The language of the RBNZ didn\u2019t suggest urgency, said ANZ\u2019s Zollner.<\/p>\n
ANZ chief economist Sharon Zollner says rising rates may be a symptom of a recovering economy. Photo \/ Corey Fleming<\/p>\n
That was \u201cconsistent with our view that a dovish-to-neutral hike with little forward guidance would provide the most flexibility in a world where the data is set to remain mixed and the outlook is uncertain\u201d, she said.<\/p>\n
But reading between the RBNZ\u2019s lines, Zollner took some heart from the beginning of the end for stimulatory policy.<\/p>\n
\u201cWe are optimistic that the economy will get back on track before long,\u201d she said.<\/p>\n
\u201cWhile our OCR forecast of three hikes in quick succession is unchanged since the peak of the oil price shock, the underlying story is now a much more cheerful one.\u201d<\/p>\n
Zollner said she thought the RBNZ would continue to hike the OCR simply because the economy doesn\u2019t need stimulatory monetary policy any more.<\/p>\n
\u201cThat\u2019s a lot more palatable than the previous scenario, of the RBNZ having to hike despite a weak economy because of an external cost shock that demands extra short-term pain to achieve the long-term gain of low and stable inflation.\u201d<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n