- Graeme Wheeler, Reserve Bank of New Zealand Governor
After months of uncertainty and not very convincing comments from the RBNZ, a rate hike was finally made. During the last couple of months analysts were making bets when the RBNZ will start raising interest rates. With stable economic improvement, rising inflation expectations and a need for higher interest rates all these factors were adding more pressure on the RBNZ.
During this month's meeting New Zealand policymakers decided to increase the official cash rate by a quarter percentage point to 2.75%, widely meeting analysts' expectations. Additionally, the central bank claimed their intentions to remove stimulus faster than initially was thought in order to contain inflation. A rate hike was inevitable, as economy was projected to expand 3.3% in the year to March. Kiwi's growth is accelerating amid stronger demand from trading partners. Nevertheless, improvement in the global economy has required exceptional support from the central bank, as global financial conditions still remain very accommodative, with very low yields on the government bonds and rising stock markets. Stronger demand was absorbing spare capacity within the economy, while inflationary pressure was increasing, especially in the non-tradable sector. New Zealand was poised to become the first developed country to start increasing interest rates to keep future average inflation around 2% and ensure the economic expansion will be sustained in the long-term.
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