The move comes amid persistent inflation concerns around the world, with US inflation data increasing to its highest level in 13 years in June, raising questions about whether such inflationary pressures are temporary.
New Zealand’s pandemic-free economy has been booming thanks to a housing boom and strong retail spending, sparking fears that it may become overheated, driving inflation above the bank’s target and squeezing the labor market.
GDP increased by 1.6 percent in the first quarter, above expectations. According to a poll released last week, the business outlook has improved since the COVID, but employment limits and inflationary pressures are beginning to bite.
Consumer price inflation pressure is projected to develop over time in the absence of fresh economic shocks, according to the RBNZ, due to rising domestic capacity pressures and expanding labor shortages.
In the minutes of the meeting, the RBNZ stated, “Members concurred that the significant downside risks of deflation and high unemployment have faded.”
“The (Monetary Strategy) Committee agreed that a ‘least regrets’ policy currently meant that the substantial amount of monetary support in place since mid-2020 could be removed sooner.”
With a rate hike this year, New Zealand would become the first developed country to begin tightening policy. The Reserve Bank of Australia stated earlier this month that no rate hikes are expected until 2024.
Following the statement, the New Zealand currency jumped 1.1 percent to $0.7017. Two-year bond yields jumped 9 basis points to 1.668 percent, a new high for the year.
“The RBNZ has plainly shifted gears, deciding that the moment for monetary stimulus reduction is rapidly approaching. Should the current amount of stimulus be maintained, the risk of inflation and employment undershooting has shifted to the risk of overshooting “ASB Bank’s Chief Economist, Nick Tuffley, stated.
As the COVID-19 pandemic raged across the country and around the world, the RBNZ dropped its interest rate to record lows and pushed billions of dollars into stimulus.
New Zealand, on the other hand, was able to control the virus’s spread, with the final community incidence of COVID-19 being reported in February, allowing the country’s economy to recover faster than most countries.
The RBNZ hinted at an increase in September 2022 during its May meeting.
Check out our economic calendar for a complete list of today’s economic happenings.
(1 New Zealand dollar = 1.4253 USD)
(Praveen Menon contributed reporting, and Richard Pullin edited the piece.)/n
