New Zealand’s monetary stimulus to exit the pandemic

The Bank of New Zealand said it will stop buying bonds this month because this Pacific country became one of the first countries in developed countries to withdraw from pandemic monetary stimulus.

The unexpected decision of the Reserve Bank of New Zealand caused the local currency to rise sharply against the U.S. dollar, as economists predicted that the bank would raise interest rates as early as August to prevent the economy from overheating.

“Members agreed that the main downside risks of deflation and high unemployment have faded,” said Adrian Orr, the bank’s governor and chairman of the Monetary Policy Committee.

“The committee agreed that the’least regret’ policy now means that the large amount of monetary support implemented since mid-2020 may be reduced more quickly to minimize the risk of not being able to perform its duties.”

The Bank of New Zealand kept the official interest rate unchanged at 0.25%.

The New Zealand economy grew by 1.6% in the first quarter as the Jacinda Ardern government removed social distancing restrictions Successfully suppressed Covid-19.

Due to increased labor shortages and increased pressure on domestic production capacity, the Reserve Bank of New Zealand expects consumer price inflation to be “more persistent” in the coming months.

Sharon Zollner, chief economist of ANZ New Zealand, said that RBNZ statement The broad suggestion titled “Decreased monetary stimulus” indicates that the New Zealand Bank believes that the monetary policy cycle has turned.

“The Bank of New Zealand has completely waved its hands today, ticking’market preparation’ for the August interest rate hike, and the rest is consumer price inflation and labor market data.”

The New Zealand dollar against the U.S. dollar rose by more than 1% to $0.7017 on Wednesday, as investors speculated that New Zealand would become the first developed country to raise interest rates after the pandemic.

Central Bank of Canada Start to scale down Its monthly bond purchases in April made it the first major central bank to reduce pandemic-related stimulus measures. last month, Norwegian Central Bank Indicates that interest rates may be raised in September.

Westpac NZ Acting Chief Economist Michael Gordon said that the tone of the New Zealand Central Bank’s statement was stronger than expected, and the possibility of a 25 basis point rate hike in August has tended to rise.

“The Bank of New Zealand is clearly approaching its bond purchase program and describes it as abolishing policy stimulus, rather than letting it end quietly as in recent weeks,” he said.

As the coronavirus swept developed countries and pushed the economy into recession, the Bank of New Zealand launched the quantitative easing bond purchase program in March 2020. The central bank said on Wednesday that it will stop its bond purchase plan before July 23. The plan was originally scheduled to last until June 2022.

Additional report from Oslo by Richard Milne

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