Interest rates

New Zealand raises interest rates by 50 basis points, signals more aggressive hikes

A security guard stands at the main entrance of the Reserve Bank of New Zealand in central Wellington, New Zealand July 3, 2017. REUTERS/David Gray//File Photo

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WELLINGTON, May 25 (Reuters) – New Zealand’s central bank raised interest rates by 50 basis points to 2.0% on Wednesday, its fifth consecutive rate hike as it seeks to tame inflation and signaled that the cash rate would peak at a higher level than previously expected.

All but one of the 21 economists in the Reuters poll expected the Reserve Bank of New Zealand (RBNZ) to raise the official exchange rate (OCR) by 50 basis points to 2.0%. An economist expected a 25 basis point hike. Read more

“A larger and earlier increase in the OCR reduces the risk of inflation persisting, while providing more policy flexibility going forward given the highly uncertain global economic environment,” the RBNZ said in a statement. a statement.

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

Wednesday’s move was the OCR’s second consecutive 50 basis point increase. The rate is now up 1.75 percentage points since the tightening cycle began in October. He expected the cash rate to rise to nearly 4.0% in the second half of next year and stay there until 2024.

The increase took the cash rate to its highest level since November 2016. The RBNZ was a forerunner in a global shift towards the removal of extraordinary stimulus measures put in place during the pandemic as authorities try to contain the surge in inflation.

The central bank sees inflation peaking at 7.0% in the June quarter of 2022, well above its 1-3% target, underscoring the urgency of moderating pricing behavior.

“A wide range of indicators point to productive capacity constraints and lingering inflationary pressures remaining prominent,” the central bank said. He added that headwinds are strong and heightened global economic uncertainty and rising inflation are weakening global and domestic consumer confidence.

The rate hike comes as the RBNZ tries to weather competing economic challenges, including a tight labor market and inflation at its highest level in three decades.

But house prices are now falling after weathering the pandemic and business and consumer confidence have fallen as the war in Ukraine poses risks to global growth. Read more

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Reporting by Lucy Craymer; Editing by Sam Holmes

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