Global Economics

New Zealand raises interest rates to combat inflation.

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The central bank of New Zealand hiked interest rates for the first time in seven years and hinted that future rises will likely be required to manage inflation, saying it expects the economy to rebound from a coronavirus outbreak that has shut down the country’s largest metropolis, Auckland.

The Reserve Bank’s Monetary Policy Committee, led by Governor Adrian Orr, raised the official cash rate by a quarter percentage point to 0.5 percent on Wednesday, as 20 of 21 economists predicted.

“The Committee noted that further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment,” the RBNZ said.

“The current Covid-19-related restrictions have not materially changed the medium-term outlook for inflation and employment since the August Statement. Capacity pressures remain evident in the economy, particularly in the labor market.”

Only the Bank of Korea and Norway’s Norges Bank have already raised rates among developed peers, putting New Zealand at the vanguard of the escape from ultra-loose policies used by central banks during the epidemic.

The RBNZ’s planned tightening cycle could be hampered by the ongoing Covid-19 outbreak in Auckland, which is undermining business confidence and dampening growth expectations.

The ruling boosted the New Zealand dollar. It was worth 69.68 US cents at 2:05 p.m. in Wellington, down from 69.55 cents earlier.

Story by : Norvisi Mawunyegah