SYDNEY Reuters - New Zealand's central bank lifted interest rates to a seven-year high and promised more pain as it struggles to cool red-hot inflation in an over-stretched economy.
The Reserve Bank of New Zealand's RBNZ policy committee raised its cash rate by 50 basis points to 3.5%, the fifth such outsized move and the eighth hike in 12 months.
The committee even debated whether to hike by 75 basis points given the heightened price pressures in the economy, but decided on a half-point move.
The Committee agreed that it is appropriate to continue to tighten monetary conditions at a pace that maintains price stability and contributes to maximum sustainable employment, said Adrian Orr, RBNZ Governor.
Consumer price inflation is too high and labour resources are scarce. The hawkish commentary contrasted with a dovish turn by the Reserve Bank of Australia, which shifted its quarter-point hike to a quarter-point hike at its policy meeting on Tuesday.
The kiwi dollar went up 0.7% to $0.5770, while two-year swap rates went up 6 basis points to 4.51%. In the largest daily dive since 2001, the rate had fallen 25 basis points on Tuesday.
Markets were pricing in a better than 60% chance that the RBNZ would hike by another 50 basis points at its next meeting in November, and have rates peaking at 4.5% by May.