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“We expect annual headline inflation to approach 4% plus by the end of the year, with the risk that high inflation outcomes persist well into 2022,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “A resilient demand back-drop, high inflation, and an economy that is effectively close to full employment necessitates that the RBNZ promptly reduces policy stimulus.”
The RBNZ said today that its gauge of core inflation rose to 2.2% in the second quarter, the highest since 2009.
The quarterly gain in the consumers’ price index was led by higher prices for house construction, used cars and fuel, the statistics agency said.
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SYDNEY, July 14 (Reuters) - The New Zealand dollar jumped on Wednesday when the country’s central bank struck a surprisingly hawkish note by halting its bond buying stimulus programme, spurring speculation it might raise interest rates before the year is out.
The kiwi climbed 1% to $0.7017 after the Reserve Bank of New Zealand ended its monetary policy meeting by saying the strength of the economy meant the current level of stimulus could be reduced.
As a result, it decided to cease buying bonds by July 23, well ahead of what most analysts had assumed.
Market reaction was swift, with yields on two-year bonds surging 9 basis points to its high for this year at 1.668%. Investors had already been wagering a hike could come as early as November given strength in consumer demand, house prices and inflation.
The era of ultra-cheap money looks to be coming to an end after yesterday s Reserve Bank monetary statement.
The Reserve Bank is expected to start raising its key interest rate as soon as next month
Photo: 123RF
It held the cash rate at 0-point-25 percent but halted the bond buying programme, which has cleared the way for a rise starting next month and another in November.
Kiwibank chief economist Jarrod Kerr said just about everyone will be affected to some degree.
According to Kerr, there could be at least three interest rate rises from the central bank within a year.