Since we talked about interest rates in class today, I find it appropriate to share this piece of news with the class. New Zealand on Thursday became one of the first developed nations to raise interest rates as Western economies slowly emerge from the global financial crisis.
“It is necessary to raise interest rates toward a level at which they are no longer adding to demand,” Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement in Wellington after increasing the official cash rate by a quarter percentage point to 2.75 percent. “The bank does not believe the current level of the exchange rate is sustainable in the long run,” he added, reiterating that the currency’s strength is a “headwind” for exporters and local manufacturers who compete against imports.
The Reserve Bank of New Zealand is mandated with keeping annual inflation between 1% and 3%, with a 2% target midpoint. “New Zealand’s economy is at the beginning of a boom and interest rates should be increased from their current low levels to keep inflation contained,” Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney, said in a note for clients ahead of today’s statement.