New Zealand Raises Benchmark Interest Rate for First Time in Three Years Amid Middle East War Impact
"Oil Price Shock May Persist for Some Time"
The Reserve Bank of New Zealand (RBNZ) has raised its benchmark interest rate for the first time in three years in response to inflation caused by the Middle East war.
On July 8 (local time), the central bank held a monetary policy meeting and unanimously decided to raise the official cash rate by 0.25 percentage points (25bp), from 2.25% to 2.50% per annum. This is the first time New Zealand has increased its benchmark rate since May 2023.
In its monetary policy report, the central bank stated, "As inflation remains above target and economic activity is expected to strengthen, there is a need to further reduce monetary stimulus in order to bring inflation back to the 2% target."
The bank further noted that economic growth is expected to resume in the second half of this year, but warned that the rise in international oil prices due to military conflict in the Middle East could continue to drive up inflation for some time.
The central bank forecasts that the consumer price inflation rate will peak at 3.9% in the second quarter of this year, then ease to 3.3% in the third quarter, and approach the target level of 2% next year. However, it stated that future decisions on the benchmark interest rate will be made by comprehensively considering economic indicators, inflation trends, and the strength of economic activity.
International oil prices recently showed signs of stabilizing due to ceasefire negotiations between the United States and Iran, but they remain higher than pre-war levels. Additionally, as the United States launched airstrikes in response to attacks on merchant ships by Iran in the Strait of Hormuz, concerns about rising energy prices and global inflation have intensified again.
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Indeed, after U.S. President Donald Trump commented that the ceasefire memorandum of understanding (MOU) signed with Iran appears to have ended, West Texas Intermediate (WTI) crude oil surged to $74.55 per barrel, jumping 5.8% in a single day.
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