On a surprising move, New Zealand’s central bank raised its benchmark cash rate by 50 basis points to 5.25% on Wednesday, higher than economists’ expectations of a 25-basis points hike, given the fact that inflation is still “too high and persistent”.
New Zealand’s consumer price index in its final quarter of 2022 stood at 7.2%, with market expectations remaining above 7% for most of 2023, forcing the central bank to further hike rates to the highest level since October 2008.
This follows the previous hike of 50 basis points, which saw the interest rate move from 4.25% to 4.75% in February to bring down inflation levels in the antipodean country.
In its statement, the bank’s monetary policy committee added that employment in New Zealand is also “beyond its maximum sustainable level,” emphasizing its aim to bring inflation down to its target of 1-3%.
It also said that demand continues to significantly outpace the economy’s supply capacity, thereby maintaining pressure on annual inflation, despite the level of economic activity over the December quarter being lower than anticipated.
NZD/USD pair, Daily chart
Following the surprising rate hike announcement on Wednesday, the New Zealand dollar had an intraday rally of 1% to as high as $0.6380 against the U.S. dollar, before retreating below the $0.63 level on the following days on negative market sentiment, and recession fears.
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