FILE PHOTO: A security guard stands in the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray
February 23, 2022
By Praveen Menon
WELLINGTON (Reuters) -New Zealand’s central bank raised interest rates by 25 basis points on Wednesday, a third consecutive hike that brings borrowing costs to pre-pandemic levels, and said it would sell bonds as it looks to counter rising inflation.
All but one of the 20 economists in a Reuters poll had expected RBNZ to hike rates by 25 basis points to 1.0%, while one was poised for a 50 basis point hike.
But RBNZ flagged a more aggressive tightening path, which sent the New Zealand dollar soaring over 0.5% to $0.6765 after the announcement.
“The Committee agreed it remains appropriate to continue reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment,” RBNZ’s monetary policy committee said in its statement.
The bank also said it will commence the gradual reduction of its bond holdings under the Large Scale Asset Purchase (LSAP) programme through both bond maturities and managed sales.
RBNZ forecasts the cash rate reaching 3.35% in March 2025. The rate would reach 2.57% by March 2023, a more aggressive path than the 2.3% seen in the previous forecast in November.
The committee said a 50-basis point OCR move was strongly considered and members saw this as a “finely balanced decision.”
The RBNZ hiked rates at its last two meetings and signalled further tightening as it looked to cool a heated economy.
Global supply constraints pushed inflation to 5.9%, almost double the top of the bank’s 1-3% target range, and jobless rates to a record low of 3.2%. House prices have also soared to historic highs.
But uncertainties remain over the outlook as the Omicron variant spreads more rapidly through New Zealand and the market braces for any global economic fallout from potential conflict in the Ukraine.
(Reporting by Praveen Menon; Editing by Sam Holmes)
Source: One America News Network
