New Zealand raises interest rates, hints more to follow

The Reserve Bank of New Zealand (RBNZ) raised its interest rate for the first time since July 2014 on Wednesday. The central bank also hinted at more policy tightening as it seeks to contain inflationary pressures and calm the country’s surging property market.

The RBNZ increased the cash rate to 0.50%, as predicted by all 20 analysts surveyed by Reuters.

The 25 basis point rate rise signals the start of a tightening cycle that was supposed to begin in August. An outbreak of the Delta coronavirus variant and the eventual lockdown delayed its initial plan.

The New Zealand dollar gained but then dropped back to $0.6930, in line with broader market movements.

The RBNZ’s move put New Zealand ahead of most other developed economies in raising interest rates as central banks try to reduce emergency borrowing costs. Norway, the Czech Republic, and South Korea have already resorted to policy tightening measures.

Economists projected the benchmark rate to reach 1.50% by the end of next year and 1.75% by the end of 2023.