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Dow Jones Newswires: New Zealand’s central bank raises cash rate for third time since October

By Stephen Wright

WELLINGTON, New Zealand–New Zealand’s central bank raised its benchmark interest rate for the third time since October and reiterated that there will be more increases this year as it tries to prevent decades-high inflation from becoming entrenched.

The Reserve Bank of New Zealand raised the cash rate 25 basis points to 1.0% on Wednesday, in line with expectations, following increases of the same size in November and October.

The central bank projected that the cash rate would reach 2.2% by the end of this year, an increase from its forecast in November of 2.1%. It also forecast that the cash rate will reach 3.3% in the last quarter of 2023, compared with its November forecast of a peak of about 2.6%.

Enormous spending by governments in response to the Covid-19 pandemic, as well as monetary stimulus from central banks, have driven a global resurgence in inflation. Shipping disruptions stemming from closed borders and congestion at ports during the pandemic have added fuel to the inflation bonfire.

The RBNZ’s policy committee said it was willing to increase the cash rate in “larger increments if required over coming quarters.”

Record-low interest rates in New Zealand during the pandemic also have contributed to a divisive surge in home prices. The median price for a home rose 11,500 New Zealand dollars (US$7,742.95) on average every month over the course of 2020 and 2021–lifting it to NZ$905,000 at the end of last year from NZ$629,000 at the end of 2019.

Consumer prices in New Zealand jumped 5.9% from a year earlier in the October-December quarter last year, the most in three decades, and accelerating from 4.9% in the previous quarter. The country’s central bank aims to keep inflation within a 1.0% to 3.0% range over the medium term.

Write to Stephen Wright at stephen.wright@wsj.com

By Stephen Wright

WELLINGTON, New Zealand–New Zealand’s central bank raised its benchmark interest rate for the third time since October and forecast a higher peak as it tries to prevent decades-high inflation from becoming entrenched.

The Reserve Bank of New Zealand raised the cash rate 25 basis points to 1.0% on Wednesday, in line with expectations, following increases of the same size in November and October.

The central bank forecast that the cash rate will reach 3.3% in the last quarter of 2023, compared with its November forecast of a peak of about 2.6%. The New Zealand dollar rose 0.6% to 67.7 U.S. cents after Wednesday’s policy meeting.

Enormous spending by governments in response to the Covid-19 pandemic, as well as monetary stimulus from central banks, have driven a global resurgence in inflation. Shipping disruptions stemming from closed borders and congestion at ports during the pandemic have added fuel to the inflation bonfire.

The RBNZ’s policy committee said its decision between a rate increase of 25 basis points or 50 basis points on Wednesday was “finely balanced.” It said it is willing to increase the cash rate in “larger increments if required over coming quarters.”

Record-low interest rates in New Zealand during the pandemic have contributed to a divisive surge in home prices. The median price for a home rose 11,500 New Zealand dollars (US$7,742.95) on average every month over the course of 2020 and 2021–lifting it to NZ$905,000 at the end of last year from NZ$629,000 at the end of 2019.

Consumer prices in New Zealand jumped 5.9% from a year earlier in the October-December quarter last year, the most in three decades, and accelerating from 4.9% in the previous quarter. The country’s central bank aims to keep inflation within a 1.0% to 3.0% range over the medium term.

Write to Stephen Wright at stephen.wright@wsj.com

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