13 Apr
Reserve Bank of New Zealand Surprises Market with 50 Basis Points Rate Hike.
- On Wednesday, the Reserve Bank of New Zealand surprised the market by raising its official cash rate by 50 basis points to 5.25%. The move was made to address overheating inflation and employment, which are expected to hinder economic growth in the country this year. The RBNZ has been proactive in combating post-COVID inflation by raising rates by a total of 500 basis points since mid-2021.
- Going forward, the bank plans to use a data-driven approach to determine how much more rates need to rise.
- While the New Zealand dollar rose 0.8% in response to the decision, the RBNZ warned that inflation expectations remain high due to adverse weather conditions and the effects of Cyclone Gabrielle. Inflation has remained well above the RBNZ’s target range, with the country yet to release its Q1 2023 inflation reading.
- Economic growth is expected to slow in 2023 due to weakening global demand, slowing local consumption, and contractionary monetary policy. The RBNZ also acknowledged that the labor market in New Zealand remains beyond its maximum sustainable level and needs to moderate further to reduce inflation.
The RBNZ’s decision to raise rates by 50 basis points, more than the expected 25 basis points, reflects its commitment to controlling inflation, which has been running at a 32-year high. However, the move is likely to further slow economic growth in the short term.
