WELLINGTON Reuters - New Zealand's central bank gave its seventh straight interest rate hike on Wednesday and signalled a more hawkish path over the coming months to restrain stubborn inflation.
The aggressive tone of the Reserve Bank of New Zealand'sBank of New Zealand's RBNZ statement, warning of future hikes being brought forward, lifted the local dollar and pushed swap rates higher.
The RBNZ raised the official cash rate OCR by 50 basis points to 3.0% as expected, a level not seen since September 2015, and it now sees rates at 4.0% by early next year, compared to a previous projection of 3.7%.
The central bank said in a statement that it is appropriate to continue to tighten monetary conditions at a pace to maintain price stability and contribute to maximum sustainable employment.
The projected peak for the cash rate was increased to 4.1%, which is where the RBNZ expects it to remain until 2024.
The policy assessment was hawkish. ANZ bank economists said that inflation is the focus.
Markets were quick to price in the more aggressive outlook.
The two-year swap rates rose 6 basis points to a three-week top of 3.97%, while the bank bill futures for March fell 13 ticks to 95.76. The New Zealand dollar rose 0.4% to $0.6360.
It's hawkish compared to expectations, in both raising the OCR track and tone, said Imre Speizer, head of NZ Markets Strategy at Westpac.
They are more worried about the labour market, that's sticking out. The labour market is too tight and inflation remains too high, and they put a new sentence in there. All 23 economists polled by Reuters had predicted the central bank's policy committee to lift the cash rate by 50 basis points, but there was some disagreement about where rates would peak and if it might have to cut them next year.
The central bank said that monetary conditions needed to be tightened until they are confident that there is sufficient restraint on spending to bring inflation back within its 1 -- 3% per annum target range.
Inflation has been at three-decade highs, hitting 7.3% in the second quarter even though the RBNZ has been a front-runner among central banks in withdrawing from pandemic-era stimulus. The cash rate has risen rapidly from a record low of 0.25% in October.
New Zealand's economy contracted unexpectedly in the first quarter due to a surge in COVID 19 cases, and growth is expected to be restrained over coming quarters due to tighter financial conditions.
The RBNZ stated on Wednesday that its priority was to prevent inflation from getting out of hand even at the cost of growth.
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