The Central Bank of New Zealand (RBNZ) surprised investors after raising interest rates above market expectations at its latest policy meeting in the Asian session.
With an increase of 50 basis points to 1.50% in interest rates, the RBNZ ignored broad market expectations for a rise of just 25 basis points.
This is the fourth consecutive rate hike from the central bank after a 25 basis point increase at each of the October, November and February meetings.
Following the decision, the RBNZ said its move towards a neutral policy earlier would reduce the risk of rising inflation expectations.
The RBNZ noted that the annual consumer price index (CPI) is expected to peak around 7% in the first quarter of this year, and the most appropriate way to address that is by raising interest rates even more now.
Globally, economic activity continued to increase inflationary pressures, amid ongoing global supply chain disruptions driven by Covid-19 particularly in China.
Moreover, the Russian attack on Ukraine also added to this challenge which caused world commodity and energy prices to rise.
In the meantime, these aggressive measures also provide more policy flexibility given the highly volatile global economic environment, the central bank added.
The kiwi dollar displayed an increase as an early reaction to the central bank’s surprise decision with the price touching the 0.6900 level against the US dollar.
