Central Banks

New Zealand's central bank delivers third consecutive hike, plans bond sales

Key Points
  • New Zealand's central bank raised interest rates by 25 basis points on Wednesday, a third consecutive hike that brings borrowing costs to pre-pandemic levels, and said it would sell bonds as it looks to counter rising inflation.
  • All but one of the 20 economists in a Reuters poll had expected RBNZ to hike rates by 25 basis points to 1.0%, while one was poised for a 50 basis point hike.
  • But RBNZ flagged a more aggressive tightening path, which sent the New Zealand dollar soaring over 0.5% to $0.6765 after the announcement.
Pedestrian walking past the Reserve Bank of New Zealand building on Saturday, June 22, 2019. New Zealand's central bank delivered its sixth straight interest rate hike on Wednesday and signaled it remained comfortable with its planned aggressive tightening path as authorities seek to reduce second-round effects of runaway inflation.
Birgit Krippner | Bloomberg | Getty Images

New Zealand's central bank raised interest rates by 25 basis points on Wednesday, a third consecutive hike that brings borrowing costs to pre-pandemic levels, and said it would sell bonds as it looks to counter rising inflation.

All but one of the 20 economists in a Reuters poll had expected RBNZ to hike rates by 25 basis points to 1.0%, while one was poised for a 50 basis point hike.

But RBNZ flagged a more aggressive tightening path, which sent the New Zealand dollar soaring over 0.5% to $0.6765 after the announcement.

"The Committee agreed it remains appropriate to continue reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment," RBNZ's monetary policy committee said in its statement.

The bank also said it will commence the gradual reduction of its bond holdings under the Large Scale Asset Purchase (LSAP) program through both bond maturities and managed sales.

RBNZ forecasts the cash rate reaching 3.35% in March 2025.

The rate would reach 2.57% by March 2023, a more aggressive path than the 2.3% seen in the previous forecast in November.

The committee said a 50-basis point OCR move was strongly considered and members saw this as a "finely balanced decision."

New Zealand's deputy prime minister says he's cautiously optimistic on the economy
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New Zealand's deputy prime minister is cautiously optimistic on the economy

The RBNZ hiked rates at its last two meetings and signaled further tightening as it looked to cool a heated economy.

Global supply constraints pushed inflation to 5.9%, almost double the top of the bank's 1-3% target range, and jobless rates to a record low of 3.2%. House prices have also soared to historic highs.

But uncertainties remain over the outlook as the omicron variant spreads more rapidly through New Zealand and the market braces for any global economic fallout from potential conflict in the Ukraine.