(Bloomberg) -- New Zealand’s central bank raised interest rates for the first time in seven years and signaled further increases will likely be needed to tame inflation, saying it expects the economy to recover from a coronavirus outbreak that is keeping largest city Auckland in lockdown.
The Reserve Bank’s Monetary Policy Committee, led by Governor Adrian Orr, on Wednesday lifted the official cash rate by a quarter percentage point to 0.5%, as expected by 20 of 21 economists surveyed by Bloomberg.
“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,” the RBNZ said. “The current Covid-19-related restrictions have not materially changed the medium-term outlook for inflation and employment since the August Statement. Capacity pressures remain evident in the economy, particularly in the labor market.”
The move puts New Zealand at the forefront of the exit from ultra-loose policies employed by central banks during the pandemic, with only the Bank of Korea and Norway’s Norges Bank having raised rates already among developed peers. The RBNZ’s planned tightening cycle could be interrupted by the persistent Covid-19 outbreak in Auckland, which is hurting business confidence and damping the growth outlook.
The New Zealand dollar rose on the decision. It bought 69.68 U.S. cents at 2:05 p.m. in Wellington compared with 69.55 cents beforehand.
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