New Zealand central bank completes bond purchases to make Reuters rate hike possible

By the hand of Praveen Menon

WELLINGTON (Reuters) – New Zealand’s central bank announced on Wednesday it would halt a quantitative easing program caused by the pandemic, sending the dollar up as markets near a rate hike this year.

The New Zealand Reserve Bank (RBNZ) kept its official cash rate at 0.25%, but cut the NZB $ 100,000 billion ($ 70 billion) bond purchase program, and local banks advanced calls to raise the rate from August. it would put New Zealand at the forefront of countries to raise interest rates.

“The RBNZ has done enough to prepare the market today to mark the“ August ”check box, and the CPI and labor market data have been set to do the rest,” said Sharon Zollner, chief economist at ANZ Bank.

The move is one of the most serious inflation concerns in the world, with U.S. inflation data rising the most in June 13, and it is increasingly clear whether these inflationary pressures are transient.

The New Zealand pandemic-free economy is growing behind strong housing growth and retail spending, and has raised concerns that inflation may overheat above the bank’s target and tighten the labor market.

In the first quarter, GDP rose by 1.6%. According to a survey conducted last week, business forecasts were better than previous levels of COVID and recruitment cuts and inflationary pressures had begun.

The RBNZ has stated that in the absence of further economic shocks, the pressure of consumer price inflation is expected to arise over time due to rising domestic capacity pressures and growing labor shortages.

“Members agreed that the high downside risks of deflation and high unemployment have been reversed,” the RBNZ said in the minutes of the meeting.

“The (Monetary Policy) Committee accepted that the policy” least regretted “now meant that a significant level of funding could be reduced earlier by mid-2020.”

HUGE CHANGE

If rates rise this year, New Zealand will be the first developed economy to embark on policy development. The Australian Bank Reserve said earlier this month that it did not expect a rate hike until 2024.

The New Zealand dollar rose 1.1% after the forecast to $ 0.7017. The yield on two-year bonds rose by 9 percentage points to 1.668% this year.

“The RBNZ has made it clear that it is very close to the time to cut money to stimulate stimulus. It has passed the risk of exceeding inflation and employment targets if the current stimulus level were to remain the same,” Nick Tuffley said. , Chief economist at ASB Bank.

The RBNZ lowered its interest rate to record lows in March last year and pushed billions of dollars for the COVID-19 pandemic across the country and around the world.

New Zealand, however, managed to maintain the spread of the virus, as the latest EU case of COVID-19 was reported in February, allowing the economy to bounce back faster than most others.

At its meeting in May, the RBNZ gave an increase in September 2022.

($ 1 = $ 1,4253 New Zealand dollar)