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RBNZ raises rates for the first time in 7 years

6 Oct 2021 10:55 AM

Reserve Bank of New Zealand raised interest rates this morning for the first time in seven years and signaled further monetary policy tightening ahead, as it looks to beat inflationary pressures and cool the red-hot housing market.

The 25 basis point rate hike marks the start of a tightening cycle that was expected to start in August but was postponed after the delta variant outbreak of the coronavirus and the ongoing shutdown in its largest city, Auckland.

The rate increase to 0.50% by RBNZ had been expected by all 20 economists polled by Reuters. The New Zealand dollar rose briefly after the announcement but fell back to trade around the 0.6890 levels against the US dollar.

RBNZ announced that further monetary policy stimulus is expected to be removed, with future moves dependent on medium-term expectations for inflation and employment.

The rate hike puts New Zealand ahead of most other advanced economies, as central banks look to reduce borrowing costs at an emergency level, even though countries such as Norway, the Czech Republic and South Korea have already raised rates.

In Australia, RBA kept interest rates at a record low 0.1% for the eleventh consecutive month yesterday.

A Reuters poll showed that economists expect interest rates to reach 1.50% by the end of next year and 1.75% by the end of 2023.

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