WELLINGTON- New Zealand’s central bank is expected this week to become the first in Asia-Pacific to raise interest rates since the pandemic began, amid concerns crisis-era stimulus is overheating the economy.
The majority of the 32 economists polled by Reuters expect the Reserve Bank of New Zealand (RBNZ) to raise the official cash rate (OCR) by 25 basis points from a record low to 0.50 percent at its policy meeting on Wednesday.
At least one economist expects a 50 basis-point hike this week. Most agree that there is more tightening coming and see the OCR reaching 1 percent by the end of the year and 1.5 percent by the end of next year.
“The New Zealand economy has moved on rapidly from impressive resilience to outright frothiness,” said ANZ Chief Economist Sharon Zollner.
New Zealand’s success in virtually eliminating COVID-19 domestically helped the economy bounce back swiftly.
But capacity pressures are building with inflation shooting up and the jobless rate falling sharply, indicating the market was heating up.
“It is clear that the New Zealand economy no longer requires the extreme monetary stimulus a 0.25 percent OCR provides. Signs of overheating are evident across the board, and the risks of a boom-bust cycle are high and rising,” Zollner said.
Zollner puts 10 percent odds on no hike, 65 percent on a 25 basis point hike, and 25 percent on a 50 basis point hike.
