New Zealand Raises Interest Rates to 7-Year High

Reserve Bank of New Zealand

New Zealand’s central bank has raised interest rates to a seven-year high, promising further hikes to come as it struggles to battle rising inflation.

The Reserve Bank of New Zealand’s (RBNZ) policy committee raised its official cash rate by 50 basis points to 3.5%, the eighth hike it has implemented in the past 12 months.

The committee even considered raising the rate by 75 basis points given intense price pressures in the economy, but ultimately decided against it.

“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 labor resources are scarce.”

The move from the New Zealand bank contrasted with the approach taken 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 0.9% to $0.5782, while two-year swap rates rose by 6 basis points to 4.51%. Rates had tumbled 25 basis points on Tuesday in the largest daily drop since 2001.

Markets were pricing in a more than 60% chance the RBNZ would hike by another 50 basis points at its next meeting in November, with rates peaking at 4.5% by May.