On Wednesday, New Zealand’s central bank (RBNZ) raised the interest rate by 50 basis points to 2.0%. It is the fifth rate hike rise in a row as they strive to keep inflation under control, and suggested that the cash rate might peak at a higher level than previously predicted.
According to all but one of the 21 economists polled by Reuters. The Reserve Bank of New Zealand (RBNZ) will raise the official cash rate (OCR) by 50 basis points to 2.0%. One economist predicted a 25 basis point increase.
“A higher and earlier rise in the OCR lessens the risk of persistent inflation. It is also giving greater policy flexibility ahead in light of the very uncertain global economic outlook”
said the RBNZ in a statement.
Following the announcement, the New Zealand dollar reached a three-week high of $0.65.
The rise on Wednesday marked the OCR’s second consecutive 50 basis point increase. Since the beginning of the tightening cycle in October, the rate has climbed by 1.75 percentage points. It predicts that the cash rate will climb to around 4.0% in the second half of next year. Consequently, it will stay there until 2024.
The central bank expects inflation to peak at 7.0% in the June quarter of 2022. It’s significantly beyond its 1-3% target, emphasizing the need of limiting price-setting behavior.
“A wide range of indicators indicate that productive capacity limits and persistent price pressures persist,” the central bank stated. It also stated that severe headwinds are lowering global and domestic consumer confidence (e.g. increased global economic uncertainty and greater prices)
The rate hike comes as the RBNZ attempts to navigate competing economic issues. (Including a tight labor market and three-decade-high inflation)
However, after increasing during the epidemic, housing prices are again declining. Corporate and consumer confidence has also plummeted as the Ukraine crisis threatens the global economy.
Source: Reuters