New Zealand raises interest rates 50 bps, signals more aggressive hikes

May 25, 2022

New Zealand's central bank raised interest rates by 50 basis points to 2.0% on Wednesday, its fifth rate hike in a row as it seeks to get on top of inflation and signaled the cash rate would peak at a higher level than previously forecast.

All but one of 21 economists in the Reuters poll forecast the Reserve Bank of New Zealand (RBNZ) would hike the official cash rate (OCR) by 50 basis points to 2.0%. One economist expected a 25 basis point hike.

"A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment," the RBNZ said in a statement.

Following the release of the statement the New Zealand dollar hit a three-week high of $0.65.

Wednesday's move was the second successive 50 basis point increase in the OCR. The rate has now risen by 1.75 percentage points since the tightening cycle started in October. It projected that the cash rate would rise to near 4.0% in the second half of next year and would remain there into 2024.

The increase took the cash rate to its highest since November 2016. The RBNZ has been a frontrunner in a global shift towards removing extraordinary stimulus put in place during the pandemic as authorities try to contain surging inflation.

The central bank sees inflation peaking at 7.0% in the June quarter 2022, well above its 1-3% target, underlining the urgency to temper price-setting behaviour.

"A broad range of indicators highlight that productive capacity constraints and ongoing inflation pressures remain prevalent," the central bank said. It added that headwinds are strong and heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence.

The rate rise comes as the RBNZ tries to navigate competing economic challenges, including a tight labour market and inflation at three-decade highs.

But house prices are now falling after surging through the pandemic and business and consumer confidence has dipped as the Ukraine war poses risks to global growth.

(Reporting by Lucy Craymer; Editing by Sam Holmes)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance. We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard .

Digital Editor

Related Posts