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New Zealand Monetary Policy October 2021

New Zealand: RBNZ triggers tightening cycle in October

At its 6 October meeting, the Reserve Bank of New Zealand (RBNZ) decided to hike the official cash rate to 0.50% from its record low of 0.25%, marking the first increase in seven years. The move was widely expected by market analysts. The Bank’s decision was driven by the desire to curb mounting inflationary pressures. Moreover, the labor market is showing signs of overheating and house prices have recorded notable increases, giving the Bank further cause to reduce its stimulus. Additionally, as domestic vaccination rates rise, the economy is expected to face fewer virus-related disruptions going forward, providing favorable conditions for a rate hike.

The Bank hinted at further tightening ahead, stating that its goal is to “continue reducing the level of monetary stimulus so as to maintain low inflation”. It expects inflation to climb above 4.0% in the near term amid higher oil prices, transport costs and global supply disruptions, and then return towards the 2.0% midpoint of the target band over the medium term.

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