New Zealand central bank raises key interest rate to 5.25%

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WELLINGTON, New Zealand — New Zealand’s central bank surprised economists on Wednesday by imposing an aggressive half-point rate hike to bring its benchmark interest rate to 5.25%.

It was the Reserve Bank of New Zealand’s 11th straight rate hike as it tries to cool inflation, which is running at 7.2%, well above the bank’s target rate of around 2%.

It will take the prime rate to its highest level since the Global Financial Crisis in 2008.

New Zealand’s benchmark rate is now among the highest in the developed world, and the bank’s aggressive action stood in contrast to Australia’s central bank, which decided on Tuesday to halt the round of increase their rate and leave their benchmark rate at 3.6%.

Most economists had expected the Reserve Bank of New Zealand to post a smaller quarterly increase after the country’s economy contracted in the December quarter and a devastating blow to the cycle in February, killing 11 person and cause billions of dollars in damage to homes and infrastructure. .

The currency rose on the announcement, with 1 New Zealand dollar trading at around US$0.64.

The increase can increase borrowing costs for consumers on everything from credit cards to mortgages.

The Reserve Bank’s Monetary Policy Committee said in a statement that inflation remained too high and too persistent while employment was above its all-time high, with the unemployment rate at a record low of 3.4%.

The Committee admitted that economic activity in the December quarter was lower than expected.

“However, demand continues to exceed the supply capacity of the economy, thus maintaining pressure on annual inflation,” he said.

The Committee said that the recent bad weather had led to higher prices for some goods and services, adding to the risk that inflation expectations would still be too high.

They said they expect economic activity in the medium term to be boosted by the recovery from Cyclone Gabrielle.

“New Zealand’s economic growth is expected to slow through 2023, as the global economy slows down, a reduction in residential construction activity, and the lingering effects of monetary policy tightening to date,” the committee said. this slowdown in consumption growth is necessary to return inflation to the medium-term target.”

The rate hike caused concern among lawmakers across the political spectrum.

“Mortgage is just one side of the coming economic pain,” said David Seymour, leader of the libertarian ACT Party. “Something has to break if the Reserve Bank continues with these hikes and the next thing is job loss.”

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