New Zealand central bank accelerates monetary tightening with rate hike
WELLINGTON, New Zealand — New Zealand’s central bank raised its benchmark interest rate by 50 basis points, accelerating the withdrawal of pandemic-era monetary stimulus after inflation surged to a multidecade high.
It was the fourth consecutive rate increase from the Reserve Bank of New Zealand after 25-basis-point increments at each of its October, November and February meetings. The increase on Wednesday lifted the cash rate to 1.5% from 1.0%.
“Moving the OCR (Official Cash Rate) to a more neutral stance sooner will reduce the risks of rising inflation expectations,” the RBNZ said.
“A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment,” it said.
The RBNZ, which helped to spur inflation with extensive stimulus during the Covid-19 pandemic, is now trying to prevent rapid increases in the prices of consumer goods from being entrenched.
But it also risks a sharp slowdown in the economy that already faces headwinds from weak business and consumer confidence, China’s zero Covid-19 policy and Russia’s war on Ukraine.
Central banks in many other countries are also grappling with the same challenges after rapidly expanding the supply of fiat money in response to the first global pandemic since 1968. Policy makers expected public health restrictions such as lockdowns to dramatically depress demand and incomes, though this was often mitigated by government support measures, while global production and shipping disruptions created a new inflationary impulse.
The RBNZ slashed its cash rate to a record low of 0.25% early in the pandemic, and alongside increased government spending equal to 20% of New Zealand’s gross domestic product and global supply-chain disruptions, pushed the country’s inflation rate to its highest in three decades.
The RBNZ’s last set of comprehensive forecasts in February projected that the cash rate would reach about 3.3% by late 2023. The RBNZ will release new forecasts at its May 25 meeting.
Economists at ANZ, one of New Zealand’s main banks, had called for 50-basis-point increases at the RBNZ’s April and May meetings. Interest-rate markets had factored in a high chance of a 50-basis-point increase on Wednesday.
Consumer prices in New Zealand jumped 5.9% from a year earlier in the October-December quarter last year, accelerating from 4.9% in the previous quarter. The central bank aims to keep inflation within a 1.0% to 3.0% range over the medium term.