© Reuters. FILE PHOTO: Two people walk towards the entrance of the Reserve Bank of New Zealand located in the New Zealand capital city of Wellington, March 22, 2016. REUTERS/Rebecca Howard
By Devayani Sathyan
BENGALURU (Reuters) – New Zealand’s central bank will raise interest rates by 25 basis points in May to 5.50% following a surprise half-point move on Wednesday and then pause for the remainder of the year, a snap Reuters poll of economists showed on Thursday.
The Reserve Bank of New Zealand’s (RBNZ) April 5 decision stunned financial markets and economists who were expecting a smaller quarter-point move as the economy has already slipped into a mild recession.
One of the first global central banks to tighten monetary policy, the RBNZ has raised rates by 500 basis points since October 2021 but inflation, at 7.2% in the fourth quarter, is still more than double the central bank’s target range of 1-3%.
A majority of economists in a snap Reuters poll, 13 of 21, said the RBNZ would opt for one final 25 basis point hike at its next meeting on May 24, taking the official cash rate to 5.50%, a higher terminal rate than thought just two days ago.
The remaining eight expected rates to remain unchanged at 5.25%. The largest banks in the country – ANZ, ASB, Kiwibank, Bank of New Zealand, and Westpac – all expected a final 25 basis point hike next month.
“The RBNZ is determined to lower inflation, whatever the cost,” noted Jarrod Kerr, chief economist at Kiwibank.
“We must expect a 25bp move to 5.50% in May. Even if it is a step too far, it’s a step they are clearly willing to take – and they can mop up afterwards. We continue to highlight the risk of overtightening, the reality of which rises with every move.”
The RBNZ’s approach is in sharp contrast to the Reserve Bank of Australia’s decision on April 4 to hold its cash rate unchanged at 3.60% after noting it needed additional time to assess the impact of previous rate increases.
Among economists who had a view on RBNZ rates beyond the May meeting, a comfortable majority, 11 of 19, expected rates to peak at 5.50% in May, in line with the central bank’s terminal rate forecast. Of the remaining eight, seven forecast rates to end at 5.25% and one predicted a rate of 5.75%.
A like-for-like analysis of the latest poll and the one taken before the April 5 decision showed nearly all respondents, 15 of 16, had raised their peak rate projection.
(For other stories from the Reuters global long-term economic outlook polls package:)
