New Zealand increased interest rate to record levels

On Wednesday, New Zealand’s interest rate was increased to a record high level by the country’s central bank. The main financial authority also set a course for more hawkish policy by choosing monetary tightening as its main tool to curb inflation.

The official cash rate was hiked by the Reserve Bank of New Zealand (RBNZ) by 75 basis points and reached the level of 4.25%. It’s a record high since the beginning of 2009.

The forecasted peak of the rate was also raised. The RBNZ currently estimates it to reach 5.5% by September 2023, and it’s also expected to remain at that level in the following year as well.

As it was stated by the RBNZ, a more rapid pace of rate hikes was caused by necessity to bring inflation back into its target range over the medium term.

According to a poll of economists conducted by the Reuters agency, a majority expected such an outcome to happen. Fifteen of twenty-three specialists shared an opinion that the cash rate would be increased by 75 points. Although, there was little consensus among the experts on where the peak of rates would be and if there might be a possibility to lower them next year.

The market reaction to updated forecasts was immediate.

A new projected peak value of 5.5% turned out to be significantly higher than most hawkish market wagers. Key two-year swap rates got higher by 29 basis points to the level of 5.285%, which became the most notable surge since 2009.

A growth of the national currency was also noted. The New Zealand dollar rate went up by 0.6% to the level of $0.6178, getting close to its latest three-months record of $0.6204.

In general, the RBNZ keeps its more hawkish attitudes in comparison with the Australian central bank, which has recently held back its pace of rate hiking.