Feb 2023 Cash Rate update

Official cash rate (OCR) update for February 2023.

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OCR now at highest rate since 2008; further increases expected this year.

As was broadly expected, the RBNZ increased the cash rate (OCR) further today from 4.25% to 4.75%, a 50bps rise. This had largely been expected given inflation data and general economic conditions and takes the OCR to its highest in 15 years and a massive 4.5% increase from its low of 0.25% in 2020. There had been some discussion of a pause given the storm damage in the last few weeks, but they’ve indicated that at this stage they see keeping price growth under control are more helpful to repair efforts the medium to long term – probably sensible.

You can see a short update from us on the likely impact to mortgage rates (spoiler alert: probably not much) on our YouTube channel.

US inflation data published last week was marginally lower than December on an annualised basis. New Zealand CPI data is published quarterly with the next update due late April, and the last NZ CPI update for the quarter ending December 2022 put annualised inflation at 7.2%, flat on the September 2022 result, and very marginally better than forecast. Where interest rates ultimately peak will be in large part down to CPI trajectory from here.

How will this affect mortgage rate and equity or fixed income prices? Probably not materially; banks may choose to adjust their floating rates over the next few days or weeks but largely this rise has been expected and priced in for a while now. The RBNZ has been pretty clear of their intentions to keep increasing rates and markets are expecting a peak of between 5.25% and 5.75% later this year. Todays move was largely in line with that – NZ equities didn’t respond positively or negatively, and we don’t expect banks to make bit changes from this either.

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