Home Business NZ central bank hikes rates 50 bps, signals aggressive tightening pace

NZ central bank hikes rates 50 bps, signals aggressive tightening pace

8 min read
Comments Off on NZ central bank hikes rates 50 bps, signals aggressive tightening pace
0
41


Article content

WELLINGTON — New Zealand’s central bank on Wednesday delivered its seventh straight interest rate hike and signaled a more hawkish tightening path over coming months to restrain stubbornly high inflation.

The aggressive tone of the Reserve Bank of New Zealand’s (RBNZ) statement warning of future hikes being brought forward lifted the local dollar and pushed swap rates higher.

The RBNZ raised the official cash rate (OCR) by 50 basis points to 3.0% as expected, a level not seen since September 2015, and crucially, it now sees rates at 4.0% by early next year, compared to a previous projection of 3.7%.

Advertisement 2

Article content

“It remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment,” the central bank said in a statement.

The RBNZ also increased the projected peak for the cash rate to 4.1% where it expects it to remain into 2024.

“The overall tone of the policy assessment was hawkish. Inflation remains the focus,” ANZ bank economists said.

Markets were quick to price in the more aggressive outlook.

Bank bill futures for March slid 13 ticks to 95.76, while two-year swap rates rose 6 basis points to a three-week top of 3.97%. The New Zealand dollar rose 0.4% to $0.6360.

“It’s hawkish compared to expectations, in both raising the OCR track and the tone,” said Imre Speizer, head of NZ Markets Strategy at Westpac.

Advertisement 3

Article content

“They’re more worried about the labor market, that’s sticking out. They put a new sentence in there to say inflation remains too high and the labor market remains too tight.”

COST PRESSURES

All 23 economists polled by Reuters had expected the central bank’s policy committee to lift the cash rate by 50 basis points, but there was some division about where rates would peak and if it might need to cut them next year.

“Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1-3% per annum target range,” the central bank said.

Inflation has been running at three-decade highs hitting 7.3% in the second quarter even though the RBNZ has been a front-runner among central banks in withdrawing pandemic-era stimulus. The cash rate has risen rapidly from a record low of 0.25% in October.

Advertisement 4

Article content

In the first quarter, New Zealand’s economy unexpectedly contracted due to a surge in COVID-19 cases and growth is expected to be restrained over coming quarters due to tightening financial conditions.

The RBNZ’s statement on Wednesday reinforced its priority was on preventing inflation from getting out of hand even at the expense of growth.

“The war in Ukraine has put upward pressure on global commodity prices, especially oil and food, and disrupted global trade,” the central bank said.

(Reporting by Lucy Craymer in Wellington, additional reporting by Wayne Cole in Sydney; Editing by Shri Navaratnam)

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.



Source link

Load More Related Articles
Load More By 
Load More In Business
Comments are closed.

Check Also

year JGB yield falls, longer-term notes keep rising

Article content TOKYO — The Japanese government bond market moved in mixed directions on W…