OCR rises, more hikes expected
Bollard raised his official cash rate (OCR) from 2.5% to 2.75%, citing a second year of the economy improving with growth becoming more broad-based, although he expects the household sector to remain relatively cautious.
It's the first change to the OCR since April last year.
Bollard is "signalling it's only the start of normalising interest rates," says Brendan O'Donovan, chief economist at Westpac. While the OCR has a long way to go to return to more normal levels, Bollard has indicated he's very open to letting events determine how fast the OCR moves up, he says.
The central bank is "trying to weigh up the relatively weak consumer against a strong external sector, partcularly strong commodity prices," O'Donovan says. At the same time, it is also trying to moderate the financial market response. "They're saying we will be doing further hikes but let's not get carried away in terms of pricing in a really aggressive cycle."
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