New Zealand’s Central Bank Lifts Interest Rate

New Zealand’s central bank has lifted interest rates to a seven-year high as it struggles to fight inflation.

The Reserve Bank of New Zealand’s (RBNZ) policy committee on Wednesday raised its official cash rate – the rate commercial banks are charged for loans, which in turn affects the cost of mortgages and other borrowings – by 0.5 percentage points to 3.5 per cent, the fifth such outsized move and the eighth hike in 12 months.

The committee also debated whether to hike by 0.75 percentage points given intense price pressures in the economy, but decided on a half-point move.

RBNZ Governor Adrian Orr in a statement; “The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment.

“Core consumer price inflation is too high and labour resources are scarce.”

Also, Jarrod Kerr, chief economist at Kiwibank added; “The statement was punchy and hawkish, and highlighted the need to demand-destruct inflation back to target.

“More rate rises are required for mandates to be met. We continue to forecast a peak in this cycle of 4.0 percent.

"Although the risk is clearly tilted towards even more policy tightening to 4.5 per cent.”

Inflation in the country was already at a 30-year high of 7.3 per cent in the second quarter and is set to rise further, while unemployment was near historic lows at 3.3 per cent.