The Reserve Bank of New Zealand (RBNZ) has increased the interest rates by 50 basis points to a 14-year high of 4.75% on Wednesday, and expected to keep tightening further due to the inflation being too high.
The signal that the central bank would go on a run sent the local dollar climbing. The New Zealand dollar rose as high as $0.6246 after the hike.
RBNZ said that it was too early to assess the policy impact of the latest devastation from cyclones and floods in the North Island of the country and expected to look over the short-term price pressure that was caused by extreme weather events.
In 2023, the RBNZ still expected the official cash rate (OCR) to peak at 5.5%, according to the monetary policy statement (MPS) that makes a decision about the interest rates. That would be the tightest policy since the OCR was introduced in 1999.
The RBNZ said that while there were early signs of easing price pressure, core consumer price inflation still remains too high and employment still exceeds the sustainable level, so the forecast of short-term inflation remains elevated.