By Lucy Craymer
WELLINGTON (Reuters) – New Zealand’s central bank unexpectedly raised its cash rate by 50 basis points to a more than 14-year high of 5.25% on Wednesday, reiterating that inflation was still too high and persistent.
Twenty-two of 24 economists in a Reuters poll had forecast the Reserve Bank of New Zealand (RBNZ) would raise rates by just 25 basis points. This is the eleventh straight hike since the central bank started raising rates in October 2021.
“The Committee agreed the OCR needs to increase, as previously indicated, to return inflation to the 1-3 percent target range over the medium term,” the statement said.
The surprise decision saw the New Zealand dollar bounce to $0.6360 from $0.6305.
At the RBNZ’s review in February, when it raised rates by 50 bps, it had signalled a 50 bp hike for April but with the outlook turning darker, economists had forecast a smaller increase.
The central bank noted that while the level of economic activity over the fourth quarter was lower than anticipated and there were emerging signs of capacity pressures easing, demand continues to significantly outpace supply capacity.
“Inflation is still too high and persistent, and employment is beyond its maximum sustainable levels,” it added.
It said that severe weather events in January and February have led to higher prices for some goods and services, whiled it expects economic activity to be supported by rebuilding efforts.
(Reporting by Lucy Craymer; Editing by Jacqueline Wong)
