New Zealand Hikes Interest Rate For Second Straight Time

(RTTNews) - The Reserve Bank of New Zealand delivered back-to-back rate hikes to contain inflation and also signaled additional tightening ahead.

The Monetary Policy Committee, governed by Anna Breman, decided to raise the Official Cash Rate by 25 basis points to 2.75 percent.

The bank had lifted the rate by a quarter-point in July, which was the first hike since May 2023.

"The Committee judges that gradually removing monetary stimulus is appropriate to return inflation to the 2 percent target mid-point while supporting growth and employment," the bank said in a statement.

The committee expects inflation to remain elevated this year before returning to the target band of 1 to 3 percent by mid-2027 and hit the 2 percent mid-point later next year.

In the June quarter, inflation rose to 4.1 percent, driven by higher fuel and related prices due to the Middle East conflict. However, excluding vehicle fuels, annual inflation eased to 2.9 percent in the June quarter.

All members agreed that downside risks to activity were significant and that the recovery could remain uneven.

Although economic growth was lackluster in the second quarter, the recovery is expected to have resumed in the third quarter, the committee said.

The MPC assessed that spare capacity remains in the economy, particularly in the labor market.

Looking forward, strength in the external sector and the effects of accommodative monetary policy will continue to support and broaden the recovery, absorbing spare capacity over the medium term.