New Zealand Hikes Rates a Second Time as Price Pressures Mount By

(Bloomberg) — New Zealand’s central bank raised interest rates for the second time in two months and signaled it will need to tighten policy more quickly than it previously expected to contain inflation.

The Reserve Bank’s Monetary Policy Committee, led by Governor Adrian Orr, lifted the official cash rate by a quarter percentage point to 0.75% Wednesday in Wellington, as expected by most economists. New forecasts published by the RBNZ show the cash rate rising to 2% by the end of 2022, a year sooner than it projected just three months ago.

“The near-term rise in inflation is accentuated by higher oil prices, rising transport costs and the impact of supply shortfalls,” the RBNZ said. “These immediate relative price shocks risk generating more generalized price rises given the current domestic capacity constraints.”                                             

The RBNZ is at the forefront of global stimulus withdrawal as policy makers start to move away from the view that faster inflation caused by supply chain disruptions during the pandemic is transitory. In New Zealand, price pressures are becoming more broad-based and persistent as a labor shortage begins to drive up wages.

The New Zealand dollar fell on the decision and bought 69.29 U.S. cents at 2:07 p.m. in Wellington, down from 69.5 cents beforehand. Some investors and economists had expected the RBNZ to deliver a 50 basis-point hike.

©2021 Bloomberg L.P.