New Zealand is raising the interest rate by 50 basis points, which includes many other measures.

The Central Bank of New Zealand on Wednesday raised interest rates for the fifth time in a row and showed a much more aggressive way to strengthen, as the government tries to reduce the effects of the second round of inflation.

The Reserve Bank of New Zealand (RBNZ) on Wednesday raised the official bank rate by 50 basis points to 2.0%, a level not seen since November 2016. Most importantly, the hawk RBNZ now expects the discount rate to double to 4.0% from next year and stay there until 2024.

Although almost all economists surveyed expected the central bank to raise the bank rate by 50 basis points, its expected rate track is more aggressive than most forecasts.

“More and more increases (the official bank rate) reduce the risk of inflation, while providing greater policy flexibility in light of the extremely uncertain global economic environment,” RBNZ said in a statement.

Following this statement, the New Zealand dollar rose by 0.7% and reached a two-week high of $ 0.6510. Interest rate swaps now have a spot rate of around 3.53% by the end of the year against 3.23% of the report.

FRONT STOP

RBNZ has been at the forefront of a global movement to lift the emergency stimulus measures introduced during the pandemic, when the government is trying to curb rapid inflation. But Wednesday’s forecast showed that the central bank is ready to step up much more than many expected.

“We forecast a more aggressive bullish cycle than RBNZ this year,” said Ben Woody, an economist in Australia and New Zealand and Capital Economics. “But the hawkish tone of the banks and the expectation of a more aggressive rate hike suggest that our forecasts are now too pigeon-prone.”

Capital Economics now forecasts an increase of 50 basis points at each of the next two RBNZ meetings, followed by two increases of 25 basis points, which will increase rates to 3.5% by the end of the year.

RBNZ Governor Adrian Orr said neutral monetary policy is about 2% -3%, and the central bank still has a long way to go.

The central bank expects inflation to peak at 7.0% in the June quarter of 2022, well above the 13% target, underscoring the urgency of easing price behavior.

“A wide range of indicators indicates limited production capacity and continued inflationary pressures, which remain prevalent,” the central bank said. She added that the headwind is strong, and growing global economic uncertainty and inflation are undermining the confidence of global and domestic consumers.

ZADATO IS SET?

The rate hike comes as RBNZ struggles to overcome controversial economic challenges, including a tough labor market, the highest inflation rate in three decades and significant risks to economic growth.

But house prices are falling – the central bank expects them to fall by 15% by the end of the year – after rising sharply during the pandemic. Confidence in business and consumers has also fallen as the war in Ukraine poses risks to global growth.

However, a number of economists are less militant than the central bank, and expect that the main factors of inflation next year will be less acute.

ASB Bank said in a note that the expected rate and degree of strengthening will affect housing prices, costs and GDP growth, which will make the peak of liquidity RBNZ too high.

“We expect demand to ease in response to higher rates a little earlier,” ASB said.

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