(Bloomberg) — New Zealand central bank governor Adrian Orr said the bank needs to raise interest rates “at pace” to prevent inflation expectations from becoming unanchored.
“We believe that the worst outcome, which we most want to avoid, is one where (higher) inflation expectations become persistent,” Orr said in an interview with Bloomberg Television Thursday in Wellington. “What are people thinking about where inflation will be two years ahead, five years ahead, we want that to remain anchored. If they start drifting up with current inflation, that’s when we get concerned.”
New Zealand two-year ahead inflation expectations have risen to 3.29%, while five-year expectations have climbed to 2.42%. The Reserve Bank aims to keep inflation in a 1-3% target band. Yesterday it delivered a second straight half-point increase in its Official Cash Rate, taking it to 2%, and forecast another 200 basis points of tightening over the coming 15 months.
“We want to move at pace to a level of around 4%,” Orr said. “I can’t commit to exactly what we’ll do when, we need to see the data like everyone does. But our best intentions are at least there’s some more 50s and 25 movements.”
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Orr Says RBNZ to Hike at Pace to Contain Inflation Expectations