Reuters file photo: Pedestrians walk near the main entrance to the Reserve Bank of New Zealand, located in central Wellington, New Zealand, on July 3, 2017. Router / David Gray / File photo
Written by Praveen Menon
WELLINGTON (Reuters) – New Zealand’s central bank on Wednesday raised interest rates for the first time in seven years and signaled a tightening as it looks to rise above inflationary pressures and cool its red-hot housing market.
The 25 basis point rate hike marks the beginning of a tough cycle that was supposed to begin in August, but was delayed after an outbreak of the coronavirus delta variant and a lockdown in its largest city, Auckland.
A survey of 20 economists surveyed by Reuters predicted a 0.50% increase in the cash rate by the Reserve Bank of New Zealand (RBNZ).
The New Zealand dollar rose briefly after the announcement but fell to 69 0.6930 in line with the broader movement of market prices, as traders expected the rise.
Announcing its decision, RBNZ said, “The Committee noted that further removal of monetary policy stimulus is expected over time, depending on the medium-term outlook for future inflation and employment.”
This rate hike puts New Zealand ahead of other developed economies as central banks seek to recoup the cost of emergency orrow, although countries including Norway https://www.reuters.com/world/europe/norway-raises-interest- rate-say-another -Growth-probably-December-2011-09-23, Czech Republic https://www.reuters.com/article/czech-economy-rates-idUSL8N2PC69R and South Korea https: //www.reuters .com / business / finance / Scoria-seen-distribution-of-first-epidemic-era-rate-increase-2011-08-25 has already increased the rate.
In neighboring Australia, the central bank maintained a record low interest rate of 0.1% for the 11th month on Tuesday.
“Everyone had a lot in common with what they were choosing,” said Jason Wang, senior market strategist at BNZ in Wellington.
“What they predicted is still valid, which means we are on a steady rate hike and the market is at a good price for it.”
According to a Reuters poll, economists expect the benchmark rate to reach 1.50% by the end of next year and 1.75% by 2023.
The South Pacific nation has enjoyed a rapid economic recovery since a cove-driven recession last year, partly because it has eradicated the coronavirus and re-launched its economy in front of others.
But with its borders still closed, labor and commodity deficits are pushing up inflation, as well as contributing to the surplus property market, driven by extremely low interest rates.
“The lack of demand is not a problem more than the capacity limitation of the economy,” the RBNZ committee noted in its minutes.
The central bank said headline CPI inflation is expected to rise above 4% in the near term but return to its 2% midpoint in the medium term.
The recent Covid-1 sanctions have not materially changed the medium-term outlook for inflation and employment, and economic activity will recover faster if the measures are simplified.
New Zealand was largely virus-free until the outbreak of the highly contagious Delta Strain in August. While Auckland is on lockdown, the government said this week that it would move away from its zero-cove strategy.
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