Band Vivek Mishra
BENGALURU, October 1 (Reuters) – New Zealand’s central bank, facing above-target inflation and an economy on the verge of overheating, will hike rates for the first time in seven years on Wednesday after a COVID-19 outbreak has left it behind. prevented from doing so in August, according to a Reuters poll.
Large amounts of stimulus and a small COVID-19 workload have helped the economy recover sharply and pushed inflation to its highest level in a decade, suggesting the central bank needs to act on it. prevent it from continuing to rise.
All 20 economists in a September 27-30 Reuters poll were unanimous in predicting that the Reserve Bank of New Zealand (RBNZ) would hike the official rate by 25 basis points from a record high to 0.50% during its political meeting on October 6.
Markets are also fully pricing a 25 basis point hike, after a handful of new COVID-19 cases triggered another lockdown in August and misguided traders expecting a rise at that time.
If the RBNZ keeps its promises, it would put New Zealand ahead of most other central banks in developed economies in the current global tightening cycle.
âA booming economy, a tight labor market, rising consumer prices and skyrocketing property prices: when the stars align like this, a rate hike is imminent,â Jeremy said. Couchman, Senior Economist at Kiwibank.
âThe RBNZ has already ended its bond buying program (and) the next step should have been a rate hike in August, but it is reminiscent of the Delta outbreak. We expect the RBNZ follows in October, with three increases to 1% by February 2022. “
The sizzling real estate market, where prices have nearly doubled over the past seven years and climbed almost 26% year-on-year in August thanks to very low interest rates, is also on the central bank’s radar.
More interest rate hikes are underway, with the benchmark rate expected to hit 1.50% by the end of next year and 1.75% by the end of 2023, according to the poll.
Still, that’s half of what it was in 2014, after the RBNZ last tightened monetary policy with four consecutive quarter-point rate hikes to ease inflationary pressures.
The poll showed that inflation will stay above the central bank’s median target of 2.0% for years to come. It is expected to rise to 2.9% this year, slipping to 2.5% next year, but still to 2.2% in 2023.
All respondents to a supplemental question said the risks to their inflation expectations were more skewed upward.
“As far as concerns the Bank might have about not fulfilling its mandate, it should be very concerned,” said Stephen Toplis, head of research at the Bank of New Zealand.
“Inflation is already well above target and is expected to stay at a level that does not require the current level of ongoing stimulus.”
New Zealand has experienced a rapid economic recovery from a recession last year, in part because it cleared the coronavirus within its borders and reopened its economy before others.
The country had been virus-free for about six months until an outbreak of the highly infectious Delta strain in August put the country in an instant COVID-19 lockdown.
Economists predicted the economy contracted 7.0% on a quarterly basis in the last quarter due to the lockdown, but expected it to rebound strongly with 7.9% growth this quarter as vaccinations increase and the epidemic is contained.
“Given the volatility of the lockdown, things look very late, as the COVID policy response has exacerbated structural risks around debt, both in New Zealand and globally,” said Sharon Zollner, chief economist at ANZ.
“Interest rates need to rise to realign risk appetite and asset prices to something more sustainable, but the risk of a hard landing is real.”
(For other articles from Reuters Global Economic Survey)
(Reporting by Vivek Mishra; Poll by Devayani Sathyan and Md. Manzer Hussain; Editing by Ross Finley and Alex Richardson)
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