RBNZ Hikes OCR Amid Global Inflation Pressures

The Reserve Bank of New Zealand has raised the official cash rate (OCR) by 0.25 basis points to 2.75 percent, its most closely watched policy announcement of the year.

This move will affect mortgage rates, business confidence, and household budgets, but a large share of the inflation squeezing Kiwi households is driven from offshore and can't be influenced directly by the OCR.

The bank has already flagged that annual inflation hit 4.1 percent in the year to June, up from 3.1 percent in March, well above its 1-3 percent target band designed to sustain economic growth and create jobs.

Non-tradable inflation, or prices of goods and services produced and sold domestically, will respond to a higher OCR by making borrowing more expensive, dampening spending and slowing price rises.

However, tradable inflation, driven by exchange rate movements and global commodity prices beyond New Zealand's control, is rising faster than non-tradable inflation, with tradable inflation up 4.9 percent over the year to June, nearly doubling from 2.5 percent in March.