WELLINGTON: New Zealand’s central bank has announced a halt to its pandemic-induced NZ$100bil (US$70bil or RM293.93bil) bond purchase progamme, sending the Kiwi dollar soaring as markets took it as sign that a rate hike was not far away.
The Reserve Bank of New Zealand (RBNZ) kept its official cash rate at 0.25%, as widely expected, but local banks brought forward their calls for a rate rise to as early as August, which would put New Zealand at the forefront of countries to raise interest rates.
“The RBNZ has absolutely done enough hand-waving today to tick the ‘market-prep’ box for an August hike, with the consumer price index and labour market data set to do the rest, ” said Sharon Zollner, chief economist at ANZ Bank.
The move comes after United States inflation data rose by the most in 13 years in June, adding to uncertainty about whether such inflationary pressures are transitory and pushing up the US dollar on bets of faster monetary policy tightening.
The New Zealand dollar rose 1.1% after the announcement, while yields on two-year bonds surged nine basis points to its high for this year at 1.668%.
“The (Monetary Policy) Committee agreed that a ‘least regrets’ policy now implied that the significant level of monetary support in place since mid-2020 could be reduced sooner, so as to minimise the risk of not meeting its mandate, ” RBNZ said in minutes of the meeting.
Members agreed that the major downside risks of deflation and high unemployment had receded. RBNZ slashed its interest rate to record lows in March last year and pumped billions of dollars in stimulus as the Covid-19 pandemic raged through the country and the globe.
RBNZ’s large scale asset purchase programme had aimed to buy up to NZ$100bil (US$70bil or RM293.93bil) of NZ government bonds, local government funding agency bonds and NZ government inflation-indexed bonds in the secondary market by June 2022.
New Zealand, however, managed to contain the spread of the virus, with the last community case of Covid-19 reported in February, allowing the economy to bounce back faster than most others. Its border is still largely closed to the outside world.
At its meeting in May, RBNZ hinted at a hike in September 2022.
Governor Adrian Orr has insisted the bank will only consider tightening policy after its inflation and employment targets are sustainably met.
Gross domestic product jumped 1.6% in the first quarter from the fourth, three times the pace forecast by economists, while the housing market continues to boom despite efforts to curb property investment. ― Reuters