WELLINGTON- New Zealand’s central bank is expected to deliver this week a third straight half-point rate hike in its most aggressive policy tightening in over two decades, but growing signs of a potentially sharp economic downturn may temper the hawkish dash.
Slumping confidence and floundering economic data are seeing the market question whether the Reserve Bank of New Zealand (RBNZ) will do more harm than good in its combative quest to contain soaring inflation.
“Monetary policy operates with a lag: it affects confidence and then activity and then finally inflation,” said ANZ chief economist Sharon Zollner.
“So by focusing on those inflation indicators, they are driving looking in the rearview mirror, which tells you there’s a fairly high chance they’ll miss the turn off and end up over tightening.”
A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ’s hawkish stride to curb the highest inflation in three decades, at 6.9 percent, has seen rates already up 175 basis points since October.
A 50 basis point rise at Wednesday’s policy review means they will have risen tenfold from a record low of 0.25 percent. And economists are forecasting another half a point hike in August, which would make it the most aggressive policy tightening since the official cash rate was introduced in 1999.
