New Zealand’s central bank has raised interest rates to the lowest level in 7 years, according to Reuters

By Wayne Cole

SYDNEY, Oct 5 (Reuters) – New Zealand’s central bank raised interest rates to the highest level in seven years on Wednesday, promising more aggressive measures.

The Reserve Bank of New Zealand’s (RBNZ) monetary policy committee raised its official interest rate by 50 basis points to 3.5%, the fifth increase by this amount and the eighth hike in rates in 12 months.

Given the severe price pressures in the economy, the panel debated whether to raise rates by 75 basis points, but settled on a half-point move.

“The Committee agreed that it is appropriate to continue to tighten monetary conditions at the pace necessary to maintain price stability and contribute to maximum sustainable employment,” RBNZ Governor Adrian said in a statement.

“Underlying consumer price inflation is very high and labor resources are tight.”

The hawkish tone contrasted with a dovish move by the Reserve Bank of Australia, which backed away from a quarter-point hike at its policy meeting on Tuesday.

Investors lifted the New Zealand dollar by 0.9% to $0.5782, while the two-year exchange rate rose 6 basis points to 4.51%. The swaps fell 25 basis points on Tuesday, the biggest daily drop since 2001.

Markets are pricing in a more than 60% chance that the RBNZ will hike another 50 basis points at its next meeting in November and rates will remain at 4.5% in May.

(Reporting by Wayne Cole; Editing by Edmund Claman; Translation by Dario Fernandez)