World News | New Zealand hikes key rate to 4.75% despite cyclone

CHRISTCHURCH (New Zealand), Feb. 22 (AP) — New Zealand’s central bank raised its benchmark interest rate by half a basis point to 4.75 percent on Wednesday as it continues efforts to curb inflation.

The increase could raise borrowing costs for consumers on everything from credit cards to mortgages, even as a devastating hurricane has already caused economic pain for many. Over time, hurricane rebuilding will only add to inflationary pressures, the bank said.

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Cyclone Gabriel hit New Zealand last week, killing 11 people and causing billions of dollars in damage to homes and infrastructure.

Reserve Bank Governor Adrian Orr said the committee that makes the rate decision agrees that rates need to be raised to ensure inflation returns to the bank’s target of around 2%, from the current 7.2%.

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While there are some early signs that price pressures are easing, core inflation remains too high, with employment at its highest sustainable level and unemployment at a low 3.4%, Orr said.

“Cyclone Gabriel and other recent severe weather events have had a devastating impact on the lives of many New Zealanders,” Orr said. “Given the scale of the disruption and economic damage is only now becoming apparent, it is too early to accurately assess the monetary policy implications of these weather events.”

Orr said the committee believes the disaster could push up prices for some commodities in the coming weeks while negatively impacting economic activity and exports. He noted that the government has yet to determine the size and timing of its economic response to the hurricane.

The 0.5 percent hike follows a record 0.75 percent hike in November. At 4.75%, the official cash rate is at its highest level since the onset of the global financial crisis in early 2009.

The rate hike was in line with market expectations and the currency was little changed, around 0.62 NZD.

New Zealand’s key interest rate is now similar to the US rate of 4.5% to 4.75%, but higher than many other developed countries including neighboring Australia, which has a rate of 3.35%. (Associated Press)

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