NZ raises interest rates

WELLINGTON - New Zealand’s central bank on Wednesday hiked interest rates for the first time in seven years and signalled further tightening to come, as it looks to cool its domestic economy and a red-hot housing market.

The 25 basis point rate hike marks the start of a tightening cycle that had been expected to begin in August, but was delayed after an outbreak of the coronavirus Delta variant and a lockdown that is continuing in its biggest city Auckland.

The increase in the cash rate to 0.50 per cent by the Reserve Bank of New Zealand (RBNZ) had been forecast by all 20 economists polled by Reuters.

The New Zealand dollar dropped slightly to settle at $0.6949, as markets had fully priced in a 25 basis point rise.

“The committee noted that further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment,” the RBNZ said in announcing its decision.

The rate hike puts New Zealand ahead of most other developed economy nations as central banks look to wind back emergency-level borrowing costs, although countries including Norway and South Korea have already raised rates.

In neighbouring Australia, the central bank held interest rates at a record low 0.1 per cent for an 11th straight month on Tuesday.

Economists in New Zealand, expect the benchmark rate to reach 1.50 per cent by the end of next year and 1.75 per cent by the end of 2023, the Reuters poll showed.

The South Pacific nation has enjoyed a rapid economic recovery since a recession last year, partly because it eliminated coronavirus and reopened its economy before others.