New Zealand Raises Key Interest Rate Unexpectedly by Half Percent

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New Zealand’s central bank has bucked the expectations of economists by raising interest rates by half a percentage point. The Reserve Bank of New Zealand’s Monetary Policy Committee approved the move to 5.25% from the current 4.75%, an action it said was necessary to reduce inflation and to keep it at the target range of 1-3% over the medium term.

This marks the 7th rate hike since April 2020, and the second consecutive move of 50 basis points. It appears that the Bank is intent on tamping down inflation even as the country’s economy heads towards a recession. Early signs indicate that the economy is responding to growing borrowing costs, as house price drops record levels and business confidence remains near its lowest reading since the 1970s.

The reaction to the decision saw the local currency, the New Zealand dollar, jump after the announcement. Trading at 63.48 cents at 2:03 pm in Wellington, it was up from 63.08 cents before the news was released.

The Reserve Bank of New Zealand, a statutory corporation established in 1989, is the nation’s central bank, mandated to perform the role of managing monetary policy to achieve and maintain price stability. It also works to promote a sound and dynamic financial system, works to maintain the stability of the cash system and supervises the banking sector. The Bank’s Monetary Policy Committee is chaired by the Bank’s Governor.

The Governor of the Reserve Bank of New Zealand, Adrian Orr, is the chief of the central bank. He was appointed in March 2018, tasked with continuing to reduce the nation’s unemployment rate, to sustain strong economic growth and to enhance households’ financial safety. Under Orr’s direction, the Bank is making strides in technological advancement, including development of an open banking system. Mr Orr has also focused on continuing the Bank’s mandate to promote sustainable and inclusive growth in New Zealand.