WELLINGTON, New Zealand – New Zealand’s central bank has said it will cut stimulus to the economy as inflation pressures rise and growth rebounds after the pandemic.
The Reserve Bank of New Zealand said on Wednesday it would cease its purchases of New Zealand government bonds – which had helped keep wholesale interest rates low – by July 23.
Its cash rate remained unchanged at a record high of 0.25% and a financing program for loans for banks was also put in place.
The central bank’s monetary policy committee said the risks of deflation and high unemployment resulting from the pandemic have now diminished.
The committee agreed that “the significant level of monetary support in place since mid-2020 could be reduced sooner,” he said.
Interest rate markets took into account a rate hike by the RBNZ in November, which would put it well ahead of Australia and the United States in the rate hike. Economists at the country’s major banks also believe that November will be the time when the central bank begins a series of rate hikes, due to rising inflation.
The central bank, in its previous policy statement in May, indicated that it could start raising its key rate from the July-September quarter of next year. Its Wednesday announcement was not a full policy statement, so it did not have specific forecasts for the economy and interest rates.
The RBNZ said expected inflation spikes this year would reflect one-off factors, but more persistent inflationary pressures could develop due to labor shortages and capacity constraints.
New Zealand’s economy has rebounded from the coronavirus pandemic, aided by increased government spending that is expected to more than double debt, stimulating monetary policy, and tough health and border measures that have so far ensured little success. infections or deaths from Covid-19.