Reserve Bank announcement casts doubt over its credibility on inflation

The Opportunities Party (TOP) calls for bold action from our central bank to rein in the biggest inflationary period in 30 years.

23 February 2022, Wellington – The Reserve Bank’s actions today cast further doubt over its credibility and focus on the serious matter of price stability, says the leader of The Opportunities Party and former investment banker, Raf Manji.

“Despite all their own evidence pointing to the need to raise the official interest rate 50 basis points to 1.25 per cent, they’ve chosen only an incremental bump to 1 per cent,” Manji says.

“Historic inflation levels, like what we’re currently seeing, call for bolder action – and the Reserve Bank have fallen short here.”

The Monetary Policy Committee noted in its February 2022 Monetary Policy Statement that “the most significant risk to be avoided at present was longer-term inflation expectations rising above the target and becoming embedded in future price setting”. It also noted “the high starting point for inflation and the drift upwards in measures of inflation expectations”.

If that wasn’t enough evidence for an immediate 50 basis point rise, they also noted “that asset valuations had been boosted by very low interest rates”.

To top it off, “the Committee also affirmed it was willing to move the OCR in larger increments if required over coming quarters” and they upgraded their forecast for the peak in interest rates is now at 3.4 per cent.

“In the face of overwhelming evidence to move faster, the Reserve Bank remains stuck in a 2020 mindset,” Manji says.

“They have missed an opportunity to reset expectations and now leave the door open to the ‘most significant risk’ they identified, and that is inflation hanging around for longer than necessary.”