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SYDNEY — The Reserve Bank of New Zealand raised interest rates further despite recent signs that inflation has peaked and as the country seeks to recover from recent storm and flood damage.
The RBNZ raised the official cash rate by 50 basis points to 4.75% on Wednesday, with the central bank warning that the war on inflation is still far from over.
“While there are early signs of price pressure easing, core consumer price inflation remains too high, employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated,” the RBNZ said in a statement.
The central bank said it is too early to accurately assess the monetary-policy implications of cyclone Gabrielle, which caused widespread damage and some loss of life early this month.
“The scale of destruction and economic disruption are only now becoming evident. The timing, size, and the nature of funding the government’s fiscal response are also yet to be determined,” the RBNZ said.
The RBNZ’s current assessment is that over the coming weeks, prices for some goods are likely to spike and activity will be weaker than previously expected.
“Monetary policy is set with a medium-term focus, and the committee will look through these short-term output variations and direct price effects,” it said.
“In time, the infrastructure and community rebuild will add to activity and inflationary pressures, especially given existing capacity constraints in the economy,” the RBNZ said.
Internationally, core inflation remains high and inflationary pressures are still broad-based, while locally, labor shortages continue to be a significant constraint on economic activity, contributing to heightened wage inflation, the RBNZ said.
