War Praveen Menon
WELLINGTON, Oct. 6 – New Zealand’s central bank raised interest rates on Wednesday for the first time in seven years and signaled that it will continue to rise in an effort to curb inflationary pressures and cool the red-hot home market.
The rate hike by 25 basis points marks the start of a tight cycle expected to begin in August, but has been delayed following the delta variant of the corona virus and continued locking up in its largest city, Auckland.
New Zealand’s Reserve Bank of India (RBNZ) interest rate is expected to rise to 0.50%, according to 20 economists conducted by Reuters.
The New Zealand dollar rose shortly after the announcement, but fell to $ 0.6930 in line with public market movements.
“The announcement met everyone’s expectations,” said Jason Wong, BNZ’s marketing strategist in Wellington. “We are on the path to a continuous rate hike and the market has reflected that greatly.”
In announcing its decision, RBNZ said further action was expected to reverse the monetary policy stimulus and that future movements would depend on the medium-term outlook for inflation and employment.
Although rate hikes have already risen in countries such as Norway, the Czech Republic and South Korea, central banks are trying to reduce the cost of emergency borrowing, which puts New Zealand ahead of most countries with developed economies.
In neighboring Australia, the central bank cut interest rates to 0.1% on Tuesday for the 11th consecutive month.
According to a Reuters poll, economists expect it to reach 1.50% by the end of next year and 1.75% by the end of 2023.
The South Pacific country experienced a rapid economic recovery from the Govt recession last year as it eradicated the corona virus and reopened its economy earlier than others.
However, with its borders still closed, labor and property shortages are driving up inflation, as well as contributing to the housing market driven by extremely low interest rates.
Central Bank CBI inflation is expected to rise above 4% in the short term, but will return to the middle of 2% in the medium term.
(Additional information by Tom Westbrook, Singapore; edited by Richard Bullin, translated by Jose Munas in Gdańsk office)
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