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The Central Bank of New Zealand increased the key interest rate to 5.5% but indicated that a reduction would follow

The central bank of New Zealand hiked its benchmark interest rate once again on Wednesday to 5.5% but indicated that its next step would be a reduction, causing the currency to decline.

The Reserve Bank of New Zealand raised interest rates by a quarter percent on Wednesday, making it their 12th consecutive increase since October 2021.

However, the bank predicted that the next step will be a reduction, which would probably occur later next year, for the first time since the tightening cycle started.

The New Zealand dollar fell by more than 1% to trade at a little under US 62 cents as a result of the prediction being more pessimistic than the markets had anticipated.

The Reserve Bank of New Zealand has been boosting interest rates in an effort to control inflation, which has decreased in New Zealand from a recent top of 7.3% last June to 6.7%.

That is still much higher than the bank's goal inflation rate, which is close to 2%.

The 3.4% unemployment rate in New Zealand continues to be low, pushing up salaries and inflation.

The global economy is still growing at a slow pace, according to the bank's monetary policy committee, although inflation pressures have decreased.

In a statement, the committee noted that “consumer spending growth has eased and residential construction activity has decreased, while house prices have returned to more sustainable levels.”

“More generally, businesses are reporting slower demand for their goods and services, as well as weak investment intentions.”

The committee predicted a spike in immigration when COVID-19 limitations were abolished.

The bank said that although the spike had alleviated the manpower shortage, its overall impact on expenditure was yet unknown.

Some committee members supported retaining the benchmark rate at 5.25 percent, according to the meeting's report. Unlike most choices, the decision to walk was decided by a 5-2 vote, breaking with tradition.

The key rate is still the highest it has been since the 2008 global financial crisis.

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