If this Thursday’s OCR decision was down to just the marginal economic information then there would be some rationale for the Reserve Bank holding fire, rather than it hiking a further 25bps, to 3.50%, as is still widely anticipated (including by us). Think plunging dairy prices, a tempering housing market and the slower than anticipated CPI inflation reported for Q2. However, it’s not quite that simple. This week’s announcement is as much about the Bank completing its strongly-indicated first phase of stimulus removal – in order to guard against medium-term inflation pressures and risk – as it is anything else.
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