New Zealand Raises Interest Rates for the First Time in Seven Years

New Zealand’s central bank has raised the interest rates on Wednesday for the first time in seven years due to concerns over rising property prices and inflation.

The Reserve Bank of New Zealand (RBNZ) increased the country’s benchmark lending rate by 25 basis points to 0.5% from a record low of 0.25%. The bank hinted that more tightening was likely.

The interest rate increase is the country’s first rate hike in 7 years and 3 months since July 2014.

The RBNZ became the third central bank of a developed economy following South Korea and Norway to raise rates since the pandemic began. This move indicated an acceleration of the global tightening of pandemic-era monetary stimulus.

A Reuters poll of 20 economists predicts the benchmark rate to climb to 1.50% by the end of next year and 1.75% by the end of 2023.

“The RBNZ’s decision to begin its hiking cycle while Auckland is still in lockdown highlights that the New Zealand economy is on the brink of overheating,” said Capital Economics in a commentary. 

The central bank reasoned that the rate increase was to maintain inflation at a low level and support employment but it acknowledged that there were concerns about rising levels of soaring real estate prices.

The central bank predicted consumer price index inflation to rise above 4.0% in the short term due to higher oil prices, transport costs, and global supply disruptions but it will return towards the 2.0% midpoint of the target over the medium term.

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