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Monday, November 29, 2021

New Zealand raises interest rates again as Jacinda Ardern battles to tame inflation

“While public health restrictions to control the spread of the Delta variant will result in a slowdown over the second half of the year, government support for business and jobs has helped the economy weather the impact,” policymakers said.

“Nevertheless, some customer-facing businesses in Auckland and a range of service sectors are suffering acute stress.”

They also fear the “risk that consumer and business confidence weakens as Covid-19 becomes more widespread across the country, dampening household spending and investment”. 

Economist Faraz Syed at Citi said financial markets had anticipated a larger rise, but the central bank held off as the economy remained weak from the effects of lockdowns and nerves over reopening.

“The RBNZ’s decision to hike the official cash rate by 0.25 percentage points rather than 0.5 was designed to balance the need to respond to ongoing upside inflation concerns but not tighten monetary conditions by too much and risk households curbing activity,” he said.

My Syed expected future rate rises to depend on migration levels as a shortage of workers will add to inflationary pressures.

“The degree that the labour market tightens could also depend on net migration outcomes next year,” he said.

“On one hand, reopening borders will allow migrants to enter New Zealand, but there will likely be an outflow of Kiwis leaving to live abroad in countries such as neighbouring Australia.”

New Zealand is also struggling with rocketing house prices. The cost of the average property jumped by about 30pc in the 12 months to September, but the central bank hopes higher borrowing costs will rein in inflation.

“Our central forecast is for house price inflation to moderate over the coming year as prices adjust to reflect higher mortgage interest rates, lower population growth, policy measures introduced by the Government and the Reserve Bank, and more new homes being built,” the MPC said.

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