SYDNEY – New Zealand’s central bank on Wednesday lifted interest rates to a seven-year high and promised more pain to come as it struggles to cool red-hot inflation in an over-stretched economy.
The Reserve Bank of New Zealand’s (RBNZ) policy committee raised its official cash rate by 50 basis points to 3.5 percent, the fifth such outsized move and the eighth hike in 12 months.
Indeed, the committee even debated whether to hike by 75 basis points given heightened price pressures in the economy, but decided on a half-point move.
“The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment,” said RBNZ Governor Adrian Orr in a statement.
“Core consumer price inflation is too high and labour resources are scarce.”
The hawkish commentary contrasted with a dovish turn by the Reserve Bank of Australia which downshifted to a quarter-point hike at its policy meeting on Tuesday.
Investors reacted by pushing the kiwi dollar up 0.7 percent to $0.5770, while two-year swap rates rose 6 basis points to 4.51 percent. Rates had fallen 25 basis points on Tuesday in the largest daily dive since 2001.
Markets were pricing in a better than 60 percent chance the RBNZ would hike by another 50 basis points at its next meeting in November, and have rates peaking at 4.5 percent by May.