share this article!

Reuters, WELLINGTON, July 14 – The New Zealand central bank announced a halt to its pandemic-induced quantitative easing program on Wednesday, sending the Kiwi dollar jumping on expectations of a rate hike this year. The Reserve Bank of New Zealand (RBNZ) left its official cash rate at 0.25 percent but cut short a bond-buying program worth NZ$100 billion ($70 billion), causing local banks to advocate for a rate hike as soon as August, putting New Zealand in the lead among countries to boost interest rates. “The RBNZ has done plenty of hand-waving today to tick the’market-prep’ box for an August hike, with CPI and labor market data to do the rest,” said Sharon Zollner, ANZ Bank’s Chief Economist. 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. find out more 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. find out more 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.” A CHANGE OF ATTITUDEThis year’s rate hike would make New Zealand 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. (1 New Zealand dollar = 1.4253 USD) Praveen Menon contributed reporting, and Richard Pullin edited the piece. The Thomson Reuters Trust Principles are our standards./nRead More

share this article!