World News | RBNZ raises key rate to 5.5%, but signals rate cut will be next move

WELLINGTON, May 24 (AP) — New Zealand’s central bank raised its benchmark interest rate again to 5.5 percent on Wednesday but signaled the next move would be a rate cut, sparking a sell-off in the currency.

Wednesday’s 25 basis point hike was the Reserve Bank of New Zealand’s 12th consecutive hike since October 2021.

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But for the first time since the tightening cycle began, the bank expects the next move to be a rate cut, which could happen later next year.

The forecast was more dovish than market expectations, sending the New Zealand dollar down more than 1 percent to just under 62 cents.

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Like many central banks around the world, the Reserve Bank of New Zealand has been raising interest rates in an attempt to curb inflation, which has fallen to 6.7% from a recent peak of 7.3% in June last year.

That’s still well above the bank’s target inflation rate of around 2%.

New Zealand’s unemployment rate remained low at 3.4%, putting upward pressure on wages and inflation.

The bank’s Monetary Policy Committee said global economic growth remained subdued and inflationary pressures were easing.

“Growth in consumer spending has slowed and residential construction activity has declined, while house prices have returned to more sustainable levels,” the committee said in a statement.

“More generally, businesses reported slower demand for their goods and services and weak investment sentiment.”

The surge in immigration since COVID-19 restrictions were lifted is expected to ease, the council said.

The surge helped ease labor shortages, but its net impact on spending remained unclear, the bank said.

The minutes of the committee meeting showed that some members were in favor of keeping the benchmark rate at 5.25%. The rate hike decision came in a 5-2 vote, a departure from the typical consensus decision.

Key interest rates remain at their highest level since the 2008 global financial crisis. (Associated Press)

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