The Reserve Bank of New Zealand raised its benchmark interest rate to 2% for the fifth consecutive increase.
New Zealand’s central bank raised interest rates 0.5 percentage points to 2 percent on Wednesday as it tries to tackle inflation while signaling the benchmark rate will peak at a higher-than-previous level.
All but one of 21 economists polled by Reuters expect the Reserve Bank of New Zealand (RBNZ) to raise the official cash rate (OCR) to 2%.
The RBNZ said in a statement after raising rates for the fifth time in a row, an earlier and larger OCR increase would reduce the risk of inflation becoming persistent, while providing more policy flexibility in the future. uncertain global economic environment.
Following the release of the statement, the New Zealand dollar hit a three-week high of $0.65.
Wednesday’s move was the second straight 50 basis point increase in the OCR. Rates are now up 1.75 percentage points since the tightening cycle began in October. The cash ratio is forecast to increase to nearly 4.0% in the second half of next year and stay there into 2024.
The rate hike took the cash rate to its highest level since November 2016. The RBNZ is at the vanguard of a global shift towards eliminating the unusual stimulus measures introduced in during the pandemic as authorities tried to contain rising inflation.
The central bank sees inflation peaking at 7% in the June quarter of 2022, well above its 1-3% target, underscoring the urgency to rein in price-setting behaviour.
“A range of indicators suggest that capacity constraints and ongoing inflationary pressures remain pervasive,” the central bank said. It added that headwinds are strong, and increased global economic uncertainty and higher inflation are dampening global and domestic consumer confidence.
The rate hike comes as the RBNZ tries to weather competitive economic challenges, including a tightening labor market and three-decade high inflation.
However, house prices are now falling after the pandemic broke out, and business and consumer confidence has dropped as the Ukraine war poses risks to global growth.