Interest rates

RBNZ hikes interest rates by 50bps, sticks to plan for further hikes

WELLINGTON, July 13 (Reuters) – New Zealand’s central bank announced its sixth straight interest rate hike on Wednesday and signaled it remained comfortable with its planned aggressive tightening path to contain inflation galloping.

The Reserve Bank of New Zealand (RBNZ) raised the official exchange rate (OCR) by 50 basis points to 2.5%, a level not seen since March 2016. A rapid and continuous tightening to maintain the stability of the award and support for maximum sustainable employment was appropriate, she said. .

Although almost all economists polled by Reuters had expected the central bank’s policy committee to raise the key rate by 50 basis points, there was speculation that it could soften its hawkish outlook, given the falls. alarming signs of business and consumer confidence and an accelerating decline in property prices.

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“The Committee agreed to maintain its approach of lifting the OCR early until it is satisfied that monetary conditions are sufficient to restrain inflation expectations and bring consumer price inflation back within range. target range,” the central bank said in a statement.

However, he added that the committee recognized there was short-term upside risk to consumer price inflation and emerging medium-term downside risks to economic activity.

After the broadly neutral statement, the New Zealand dollar barely moved, but interest rates continue to fall, with two-year swap rates down 5 basis points to 3.845%.

PEAK INFLATION

A pioneer among central banks in withdrawing pandemic-era stimulus, the RBNZ moved aggressively to rein in inflation, which was 6.9% in the first quarter, the highest rate in three decades. The spot rate is up tenfold from a record low of 0.25% in October.

The RBNZ has forecast inflation to peak at 7.0% in the second quarter of 2022, well above its target of 1% to 3%.

Second-quarter price data due next week will show whether that forecast has been exceeded. Surprisingly high numbers would affect the future path of interest rate hikes, ANZ Bank said.

But ANZ added that RBNZ decisions were likely to become more difficult in the second half of the year as evidence showed that tighter financial conditions were indeed dampening demand and ultimately inflationary pressures.

“The debate around ‘how much is too much?’ will naturally become much stronger,” he said.

Like most economists, ANZ expects the central bank to raise interest rates another 50 basis points in August. However, there is growing expectation that after that, the upsides will slow down.

Barclays said in a note that after a 50 basis point hike in August, the balance of risk would shift to increases of 25 basis points, reflecting growing signs of moderating domestic growth.

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Reporting by Lucy Craymer; Editing by Muralikumar Anantharaman and Bradley Perrett

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