By Vivek Mishra
BENGALURU (Reuters) – New Zealand’s central bank will hike rates for the second meeting in a row on Wednesday and continue its wave of tightening next year as it tries to curb rising inflation and cool a overheated real estate market, according to a Reuters poll.
Large amounts of fiscal and monetary stimulus injected to ease the pain of the pandemic have helped the economy recover sharply and pushed inflation to its highest and the unemployment rate to its lowest in over a decade.
This prompted financial markets to factor in a series of interest rate hikes until next year that economists have mostly reflected in their forecasts.
All but two of the 23 economists in a Reuters poll from November 15-19 predicted that the Reserve Bank of New Zealand (RBNZ) would hike the official rate by 25 basis points to 0.75% at its policy meeting on the 24th. November. The markets are also anticipating a rise of 25 basis points.
The two dissidents expected a 50 basis point increase.
“Unlike other central banks, the RBNZ does not have the luxury of time for itself. They are on a hiking cycle for sure; we’ve seen one rate go up, we’ll have another one next week and I think they’ll go up with every meeting until next year, ”said Jarrod Kerr, chief economist at Kiwibank.
“The economic climate is much warmer than the RBNZ anticipated … the decision to raise interest rates is in part due to the excesses in the housing market.”
Ben Udy, an economist at Capital Economics, predicts a 50 basis point hike in the RBNZ on Wednesday, which, if materialized, would bring rates back to their pre-pandemic level of 1.00%.
“The fact that every measure of core inflation the bank monitors is now around or above the high end of the bank’s target, it is evident that more monetary tightening is needed. “said Udy.
Medians predict that the official treasury rate (OCR) will reach 1.75% by the end of next year and 2.0% by the end of 2023. Still, that’s lower than what it was in 2014, after the RBNZ last recorded four straight quarter-point rate hikes.
New Zealand’s annual inflation hit 4.9% in the third quarter, the fastest pace in more than a decade, due to housing costs and other supply constraints.
The RBNZ also warned that more persistent inflationary pressures and any increase in inflation expectations https://www.reuters.com/article/newzealand-economy-inflation/update-1-new-zealand-inflation-expected-to -rise-in -q4-rbnz-survey-idINL1N2S904F, coupled with lower growth, could lead to a sudden tightening of financial conditions.
In contrast, the unemployment rate https://www.reuters.com/business/cop/new-zealand-unemployment-rate-drops-record-low-q3-2021-11-02 fell to 3.4% in third quarter, tying its lowest since December 2007. It was around the same time the US economy fell into a deep recession after the housing bubble burst.
New Zealand’s sizzling real estate market will also feature prominently in the central bank’s monetary policy decision, which recently said house prices were above their sustainable level and this increased the chances of a correction. .
Home prices have almost doubled in the past seven years and are the most unaffordable https://www.reuters.com/world/asia-pacific/growing-supply-will-bring-down-new-zealand-house- prices-says -rbnzs-orr-2021-11-01 among OECD countries due to chronic housing shortages, historically low interest rates and cheap access to capital through spending on government stimulus induced by the pandemic.
“The job market is the tightest it has ever been and inflationary pressures are intense, but on the other hand, the housing market cycle looks very mature, and there is the little problem of COVID. that is spreading across the country, ”said Sharon Zollner, chief economist at ANZ.
“Overall, the case for tighter monetary conditions is clear.”
(Reporting by Vivek Mishra and Devayani Sathyan; Poll by Md. Manzer Hussain and Shaloo Shrivastava; Editing by Ross Finley and Steve Orlofsky)