By Stephen Wright
WELLINGTON, New Zealand–New Zealand’s central bank raised its policy interest rate for the second time in two months as it withdraws pandemic stimulus that has driven consumer price inflation to its highest point since 2010.
The Reserve Bank of New Zealand on Wednesday raised its cash rate by 25 basis points to 0.75%. Seven of eight forecasters in a Wall Street Journal survey had expected that outcome. The central bank had raised the cash rate to 0.5% from a record low 0.25% in October.
The RBNZ increased its projection for the eventual peak in the cash rate to 2.6% by the fourth quarter of 2023 compared with 2.1% by early 2024 in its previous set of forecasts.
New Zealand’s consumer prices rose 4.9% from a year earlier in the third quarter–well above the RBNZ’s 1.0%-3.0% target–due to surging demand brought on by pandemic stimulus and labor shortages that also stem from the country’s closed border.
The RBNZ said that there is a risk that price shocks from the pandemic could produce more generalized price rises. The most appropriate response for now is considered increases in the cash rate, it said.
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