New Zealand’s central bank left interest rates unchanged at a record low of 0.25%, as policymakers quickly shifted gears after the country was put into a snap lockdown following the detection of new coronavirus cases. The economy is running red-hot and a majority of economists polled by Reuters last week had expected the Reserve Bank of New Zealand (RBNZ) to raise the official cash rate (OCR) by 25 basis points from a record low to 0.50%. Some said Governor Adrian Orr may even deliver a 50-basis point rate hike.
New Zealand’s first local COVID infection in six months has been reported and a snap lockdown ordered for the entire nation hosed down those expectations and forced policymakers to confront the potential risks of moving now. RBNZ’s monetary policy committee said in a statement that the decision was made in the context of the government’s imposition of Level 4 COVID restrictions on activity across New Zealand.
A hike would have made New Zealand the first both in the Asia-Pacific and the G10 currency block to raise rates in the pandemic era. While most developed economies are still holding off hiking, New Zealand’s successful COVID elimination strategy has fired a hot economic recovery and stoked inflation. However, New Zealand’s vaccination rate is low, leaving the nation of 5 million vulnerable. And that is a fact underscored by the latest detection of the highly infectious Delta variant which has hobbled neighboring Australia.