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Reserve Bank Of New Zealand Eases It’s Hawkish Stance

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The Reserve Bank of New Zealand has been more fortunate in withdrawing stimulus during the pandemic compared to its peers, struggling to contain inflation by raising interest rates by 525 basis points since October 2021 in the most aggressive tightening. The rate hikes have sharply slowed down the economy, as recent data showed it was falling below previous central bank expectations. Global central banks, led by the Federal Reserve, have recently backed away from market expectations for an early start to interest rate cuts due to ongoing inflationary pressures.

The Reserve Bank of New Zealand’s statement echoed global concerns about prices, reiterating the need to keep policy tight for a period to bring inflation below the upper limit of its targeted range of 1% to 3%. The central bank pointed to a global incentive to keep policy stricter for a longer period.

The Reserve Bank of New Zealand’s statement said, “The most general risk to global growth is that central banks may need to keep interest rates at constrained levels for longer than currently reflected in financial market prices, to ensure the achievement of inflation objectives.” The central bank also highlighted geopolitical risks and the slowdown in the Chinese economy as policy challenges.

New Zealand’s annual inflation rate has dropped in recent months and currently stands at 4.7%, with expectations that it will return to its targeted range in the second half of this year.

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