New Zealand's Central Bank Raises Interest Rate, Says More Lifts Likely
The Reserve Bank of New Zealand on Wednesday decided to increase interest rates by 25 basis points, saying inflation remains elevated despite an improved near-term outlook.The bank's Monetary Policy Committee reached a consensus to lift the Official Cash Rate to 2.5% in order to reduce monetary stimulus to ensure that inflation returns to target over the medium term.The committee had mixed views on the medium-term inflation outlook, as two members assessed risks as skewed to the upside, while four members viewed them as broadly balanced.RBNZ's near-term inflation forecast has declined as it expects annual headline inflation to peak at 3.9% in the June quarter, before falling to 3.3% in the September quarter, reflecting smaller direct price effects due to the lower price of oil.Annual headline inflation is expected to return to the target mid-point in mid-2027, the central bank added.The committee agreed that further rate increases are possible at future meetings, but that the timing might be "highly uncertain," and upcoming decisions will depend on how price-setting and excess capacity affect inflation pressures in the medium-term.ANZ said the rate lift was within expectations and continues to expect that September and October meetings will take the OCR to 3%, while Westpac, which expected a hold decision, said September and December meetings are expected to carry a 25 basis point lift each, and the OCR will peak at 4% in September 2027.
