RBNZ Hikes Cash Rates for the First Time in Seven Years

Ibeth Rivero

The Reserve Bank of New Zealand recently decided to hike cash rates for the first time in seven years at 0.5%, in line with expectations and after being at 0.25%.

This makes the Reserve Bank of New Zealand one of the first central banks in the developed world to abandon its ultra-loose monetary policy stance. Previously, the South Korean central bank raised the cash rates from 0.5% to 0.75%, followed by Norway and the Czech Republic, which hiked their rates last month.\

The bank also announced that it is considering removing more monetary policy stimulus measures, depending on the employment and inflation outlook.

"The Committee noted that further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment," announced the Bank.

Last year, the bank had set the cash rate at the historical minimum of 0.25% to aid the country's economic performance, which was facing the spread of the COVID-19 pandemic and had to deal with the effects of imposing restrictions on economic and social activities.

Analysts believe that the bank decided to raise the rates to keep inflation levels under control. Inflation has been rising across the world, which is believed to be linked to supply bottlenecks. The central bank expects the Consumer Price Index to increase over 4% in the short run but return to the bank's 2% target in the long run.

New Zealand’s GDP rose by 2.8% in the third quarter (quarter-on-quarter), above expectations of 1.4%. In yearly terms, the GDP increased by 17.4%.

New Zealand is now dealing with the spread of the COVID-19 virus. Since the beginning of the pandemic, 4,450 COVID-19 cases have been reported, including 27 related deaths, making it one of the least affected countries in the world.

Until now, the government had aimed to eliminate the virus, though recently it decided to change its strategy and focusing on vaccinating the local population. So far, 5.4 million doses have been distributed among the local population, with 2.06 million individuals fully vaccinated, accounting for 40.5% of the total population.

Since the beginning of the week, the New Zealand dollar has dropped by 0.92% against the US dollar, losing ground for the fifth consecutive week. Yesterday, the Kiwi dropped by 0.08% against the greenback, breaking a three-day gaining streak.

By 10:23 GMT, the New Zealand dollar dropped by 1.11% against the US dollar, dropping to the 0.6885 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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