'Inflation War' in New Zealand, Interest Rate Raised by 0.5%p for Two Consecutive Months

1st Quarter Consumer Price Inflation Rate 6.9%
Reserve Bank of New Zealand Signals Additional Rate Hike

[Image source=Yonhap News]

[Asia Economy Reporter Cha Min-young] The Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 0.5 percentage points again following last month, indicating the possibility of further hikes.

According to foreign media reports, at the regular Monetary Policy Committee meeting, the RBNZ raised the official cash rate (OCR) by 0.5 percentage points to 2.0%, the highest level since November 2016.

The RBNZ has raised rates three consecutive times since its first hike in over seven years in October last year, and last month implemented the largest increase in 22 years by raising the rate by 0.5 percentage points. With this latest hike, the total increase in the official cash rate during this period amounts to 1.75 percentage points.

Adrian Orr, Governor of the RBNZ, stated in a release after the rate decision, "Given the highly uncertain international economic environment, a larger and earlier rate hike than expected will provide policy flexibility while reducing the risk of inflation becoming entrenched," suggesting the possibility of further rate increases.

New Zealand's first-quarter consumer price inflation rate stands at 6.9%, the highest in about 30 years. The RBNZ expects inflation to peak at 7% around June before turning downward, falling to around 3.5% by March next year.

Meanwhile, Capital Economics expects the RBNZ to raise rates by 0.5 percentage points in the next two regular meetings, followed by two additional hikes of 0.25 percentage points each, projecting the year-end official cash rate at 3.5%. Capital Economics anticipates the official cash rate to approach 4.0% in the second half of next year and remain at a similar level through 2024.