New Zealand central bank raises key rate

WELLINGTON, New Zealand (AP) – New Zealand’s central bank on Wednesday raised interest rates for the first time in more than seven years, removing some of the support it put in place when the pandemic of coronavirus has started.
The Reserve Bank raised the benchmark rate to 0.5%, from a record low of 0.25%.
The move came despite an ongoing lockdown in Auckland, its largest city, due to a coronavirus outbreak.
The bank said the lockdown had severely affected some Auckland businesses, but a wide range of indicators indicated New Zealand’s economy was performing strong overall. He said inflation is expected to rise to 4% in the short term before falling to 2% in the medium term.
The bank’s latest interest rate cut was a 0.75 percentage point cut in March 2020, when the pandemic first took hold.
Earlier this week, Prime Minister Jacinda Ardern announced a cautious plan to ease lockdown restrictions, acknowledging what other countries did long ago: He can no longer get rid of the coronavirus completely.
Since the start of the pandemic, New Zealand has pursued an unusual zero-tolerance approach to the virus through strict lockdowns and aggressive contact tracing.
The strategy has made it possible to largely control epidemics. While the country has kept its borders mostly closed, domestic trade and commerce have suffered less than in many other countries.
âThe RBNZ’s decision to begin its hiking cycle with Auckland still stranded shows that New Zealand’s economy is on the verge of overheating,â Capital Economics said in a comment. He said he expects further rate hikes in the coming months.
Shares fell in New Zealand on Wednesday after the hike was announced.
Central banks around the world have reassessed their policies as a faltering recovery takes hold from the pandemic downturns of 2020.
The move comes as the US Federal Reserve prepares to cut its own massive support for the US economy, with a rate hike expected perhaps by next year.
In Japan, the central bank has cut back on some asset purchases, although it shows no signs of backing down in its efforts to keep interest rates close to zero after failing for years to hit an interest rate. target of 2%.