NZ hikes rates to six-year high to fight inflation

WELLINGTON

New Zealand’s central bank yesterday raised its benchmark interest rate to the highest level in six years as it tries to control surging inflation that is rattling the global economy.

After hiking its official cash rate by a widely anticipated 50 basis points to two percent, Reserve Bank of New Zealand governor Adrian Orr warned that further rises would follow.

The local dollar jumped more than half a U.S. cent after the decision, though shares in Wellington were down in afternoon trade.

The increase is the second in six weeks and comes as inflation sits at 6.9 percent, its highest level in more than 30 years.

“A larger and earlier increase... reduces the risk of inflation becoming persistent,” Orr said in a statement.

“However, headwinds are strong. Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence.”

The Reserve Bank is forecasting annual inflation to peak in the middle of this year at around seven percent before dropping to near half that figure by March 2023.

The move comes as central banks around the world are forced to tighten monetary policy, raising worries about the global economy, to battle a surge in prices caused by a range of issues including the Ukraine war, China’s lockdowns and rising wages.