New Zealand’s central bank raised interest rates for a third straight meeting and signaled it will need to hike further than previously expected to contain inflation, sending bond yields and the currency higher.
The Reserve Bank’s Monetary Policy Committee increased the official cash rate by 25 basis points to 1% Wednesday. New forecasts published by the RBNZ show the cash rate climbing to 2.5% over the next 12 months and peaking at about 3.25% at the end of 2023. In November, it had forecast a peak of about 2.5%.
“It was agreed that more monetary tightening was needed than signaled in the November statement,” the MPC said in its record of meeting.
“The committee confirmed that the outlook for a higher OCR at the end of the projection horizon was a balanced reflection of the likely path of interest rates.”
Following the development, two-year bond yield of New Zealand jumped 10 basis points heading to the highest close in five years.
“The statement showed a need to lean much harder against inflation than in November, and with some added concern expressed about the risk of high inflation becoming embedded,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “The RBNZ needs to tighten monetary policy considerably further from here.”
