RBNZ raises rates for first time in seven years

Reuters reports that the Reserve Bank of New Zealand (RBNZ) hiked interest rates for the first time in seven years and signalled further tightening to come, as it looks to get on top of inflationary pressures and cool 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.

Announcing its decision, the RBNZ said further removal of monetary policy stimulus was expected, with future moves depending on the medium-term outlook for inflation and employment.

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, the Czech Republic and South Korea have already raised rates.

The central bank said headline CPI inflation is expected to increase above 4% in the near-term but return towards its 2% midpoint over the medium term.

Recent COVID-19 restrictions have not materially changed the medium-term outlook for inflation and employment, and economic activity will recover quickly when the measures are eased, it added.

But economists said the RBNZ may not race ahead with its hiking cycle in view of the current global uncertainty and the Delta variant outbreak dragging on in Auckland.