On Wednesday, the Reserve Bank increased the Official Cash Rate (OCR) by 0.75 percentage points (pp) to 4.25%. This isn’t surprising given that inflation has reached a 30-year high of 7.2%, but is it too little too late?
Think of the OCR as the cost of money. So, if prices increase too quickly, the RBNZ increases the OCR to keep a lid on inflation to ensure the economy does not overheat. But why then, did the OCR remain at a low of 0.25% in early 2021 when inflation started to rise?