By Lucy Craymer
WELLINGTON (Reuters) – The New Zealand central bank considered the impact of recent extreme weather events when deciding to hike the cash rate by 50 basis points on Wednesday, but remained focused on controlling inflation, Assistant Governor Karen Silk said on Friday.
Silk told Reuters that there were other people better placed to help those affected by Cyclone Gabrielle and the flash flooding.
“Controlling inflation and getting that under control, and back down to within that one to three (percent) band is in the best interests of all New Zealanders including those affected,” she said.
On Wednesday, the central bank hiked the cash rate 50 basis point to 4.75%, its highest level in 14 years, and forecast further hikes this year.
Silk said while the bank discussed a hike of 75 basis points, recent and fourth quarter data showed early signs that inflation was easing.
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“That was factored into the 50 basis points but the peak of 5.5% reflects, though, that there is upside risk here,” she said.
Silk added risks had increased with the weather events, which will certainly add short term price pressures and the recovery itself will add activity to the market.
The central bank is forecasting that New Zealand will move into a recession in the second quarter of this year and stay there for the remainder of this year.
Silk said she hoped that increases to the cash rate would not result in deep recession but that decisions had to be made with the data that they had on hand.
(Reporting by Lucy Craymer; Editing by Josie Kao)