The Reserve Bank of New Zealand’s Monetary Policy Committee has decided to raise the benchmark interest rate for its operations by 50 basis points to 5.25%, its highest level since late 2008.
This is the eleventh consecutive increase in the price of money adopted by the Committee, which has raised the benchmark interest rate by 500 basis points since October 2021.
“The Committee agreed on the need to raise the official cash rate, as previously indicated, to bring inflation back to the 1-3% range over the medium term,” the body responsible for the Oceanic country’s monetary policy has announced. “Inflation is still very high and persistent. Moreover, employment is beyond its maximum sustainable level,” it has completed.
However, the Reserve Bank has considered that the levels of economic activity in the December quarter were lower than anticipated, suggesting that the economy is cooling. Even so, it said, demand “clearly” exceeds supply capacity, which “sustains the pressure on annual inflation”.
On the other hand, the entity emphasized the robustness of New Zealand’s financial system in times of “stock market volatility” due to the collapse of Silicon Valley Bank and the merger of Credit Suisse and UBS.
In terms of future projections, the central bank has predicted a weakening of economic growth in 2023 due to the global slowdown, lower residential construction and the effects of the restrictive monetary policy implemented.
The sluggish global economy will lead to weaker external demand for the main exported commodities, while the rise in tourism will “partially offset” this drop in income.
The next meeting of the Committee to update interest rates will be held on May 23.