RBNZ Raises OCR by 25bps to 2.75% in Gradual Normalization Effort

The Reserve Bank of New Zealand (RBNZ) has raised its Overnight Cash Rate (OCR) by 25 basis points to 2.75%, as expected.

In making this decision, the RBNZ Committee stated that gradually removing monetary stimulus is necessary to return inflation to its 2% target midpoint while supporting economic growth and employment.

Rather than a tightening cycle aimed above neutral, the RBNZ's communications have historically framed normalization as moving towards a neutral position. In past episodes of this framing, the two-year yield tends to sell off modestly, while the longer end stays anchored.

The key factor in determining the New Zealand dollar's reaction will be whether the published rate path shifts relative to what was priced in the market.