RBNZ’s Orr: Lifting OCR too far or too fast can lead to a severe downturn

“We need to bring inflation back to a target range. But of course, we need to do it over a reasonable horizon so as not to unnecessarily crash the economy and turn temporary, slower growth into permanent unemployment,” said Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr while speaking to the NZ Economics Forum at Waikato University early Friday in Asia.

Key quotes

A single mandate is not simpler than the dual mandate.

Other issues around financial stability and unnecessary volatility and that's where the balancing act gets really hard.

Lifting the official cash rate too far or too fast can, for example, lead to a severe downturn; spending and investment collapses, and you ended up with a much higher exchange rate because foreign exchange dealers chase the high-yielding New Zealand dollar, and you crush the export sector.

Market reaction

The news joins the broad-based US Dollar strength to keep NZD/USD bears hopeful around 0.6215 by the press time.

Also read: NZD/USD attempts recovery from 0.6200 as USD Index displays a momentum loss