New Zealand’s central bank yesterday raised interest rates by half a percentage point, its biggest hike in 22 years, indicating it is worried that inflation is getting out of control.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee lifted the official cash rate (OCR) to 1.5 percent from 1 percent, the first time it has delivered an increase of that magnitude since 2000.
“The committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations,” the RBNZ said. “It is appropriate to continue to tighten monetary conditions at pace.”
Photo: Reuters
The central bank has raised the cash rate for four straight policy meetings, lifting it by 125 basis points since October last year, as inflation surged to a 32-year high. The risk is that the rapid rise in borrowing costs could stall the economy. House prices are already falling, and business and consumer confidence have slumped amid New Zealand’s worst COVID-19 outbreak.
“The RBNZ’s decision to accelerate its hiking cycle shows it is willing to move decisively to get a hand on surging inflation,” said Ben Udy, an economist at Capital Economics in Singapore. “We expect it to hike the OCR to 3 percent by the end of this year.”
In its statement, the RBNZ said it remains comfortable with the forward track for the cash rate it published in February, indicating it sees no need to take rates higher than the 3.25 percent peak it forecast for the end of next year.
However, it said it wants to get the OCR “to a more neutral stance sooner.”
It estimates a neutral level for the cash rate is about 2 percent.
“The committee noted that the OCR is stimulatory at its current level,” it said. “Members noted that annual consumer price inflation is expected to peak around 7 percent in the first half of 2022. The risk of more persistent high inflation expectations has increased.”
The RBNZ aims to keep inflation around the middle of a 1 to 3 percent target range.
New Zealand is at the forefront of global policy tightening as central banks around the world respond to an inflation surge that is threatening to become entrenched. The Bank of Canada was expected to raise its key rate by half a point to 1 percent later yesterday, while the Bank of Korea might add to its three rate hikes today.
The US Federal Reserve began its tightening cycle last month and its policymakers have signaled they could move in half-point steps if needed. The Reserve Bank of Australia this month opened the door to rate increases, with economists tipping its first hike would come in early June.
“Heightened global economic uncertainty and inflation are dampening consumer confidence,” the RBNZ said. “The rise in mortgage interest rates — amongst other factors — have acted to reduce mortgage demand and house prices.”
Russia’s invasion of Ukraine is worsening inflation by driving up commodity prices, while also hurting confidence and dampening the economic outlook.
“A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment,” the RBNZ said.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure