A leading New Zealand economist has predicted the Official Cash Rate - at a record low since the pandemic hit - will increase by 50 basis points in August.
Several major New Zealand banks are forecasting it will increase to 0.5 percent in August, but Infometrics principal economist Brad Olsen has predicted it could rise to 0.75 percent.
"With a clear signal from the Reserve Bank that tighter monetary policy is needed, and with stronger and probably more sustained inflationary pressures, we now expect the OCR to be increased in August," he wrote in a post to Infometrics website on Tuesday.
"Given the strong inflation data, and signs of extreme tightness in various labour market indicators, we also highlight a rising chance that this increase could be 50 basis points, taking the OCR from 0.25 percent to 0.75 percent."
He said there is also potential for the Reserve Bank to change Funding for Lending Programme (FLP) settings to limit Tranche 2 support in the scheme,
"None of this tranche has been drawn on yet, and so it remains relatively easy to tweak."
Olsen noted the Bank is likely to be "somewhat cautious" about raising the OCR too quickly this time around.
"In 2014, the OCR was lifted from 2.5 percent to 3.5 percent, only for the Bank to reverse the increases the following year when inflation failed to materialise. However, back in 2015, strong migration helped keep labour market pressures subdued and inflation in check. That 'relief valve' is clearly not available for employers or the economy this time around.
"Whatever the case, rising inflation and substantially better economic conditions make a clear case for less stimulus being needed. Even with the OCR rising from next month, monetary policy settings will remain supportive, just not to the same degree as they have been over the last 16 months."