New Zealand central bank raises key interest rate to 5.5%, but next step signals cut

WELLINGTON, New Zealand — New Zealand’s central bank raised its key interest rate again to 5.5% on Wednesday, but signaled that its next move would be a cut, triggering a selloff in the currency.

Wednesday’s quarter-point rate hike was the 12th consecutive rate hike ordered by the Reserve Bank of New Zealand since October 2021. However, for the first time since the start of the tightening cycle, the bank has forecast that the next step will be a cut, which is likely to come later. next year.

The forecast was harsher than markets had expected and sent the New Zealand dollar down more than 1% to just under 62 US cents.

Like many central banks around the world, the Reserve Bank of New Zealand is also raising interest rates to try to tame inflation, which in New Zealand has fallen to 6.7% from its most recent peak of 7.3% in June last year.

This is still well above the bank’s inflation rate of around 2%.

New Zealand’s unemployment rate remains low at 3.4%, putting upward pressure on wages and inflation.

According to the bank’s monetary policy committee, global economic growth remains weak and inflationary pressures are easing.

“Consumer spending growth moderated and homebuilding activity declined while home prices returned to more sustainable levels,” the commission said in a statement. “More generally, businesses report slower demand for their goods and services and weak investment intentions.”

According to the committee, the wave of immigration is expected to ease since the lifting of the COVID-19 restrictions. The bank said the surge helped ease labor shortages, but its net impact on spending remains unclear.

The summary of the committee’s meeting showed that some members decided to keep the benchmark rate at 5.25%. The hike was decided by a 5-2 vote, deviating from typical consensus decisions.

The key rate remains at the highest level since the 2008 global financial crisis.