New Zealand is preparing to raise interest rates after locking down hard for COVID-19. Stephen Wright reports at The Wall Street Journal:
New Zealand largely kept out Covid-19 by closing to the outside world, a policy accompanied by stimulus to keep the economy moving. Now the resulting labor shortages and surging demand, notably for housing, have led it to become one of the first developed economies to raise interest rates since the pandemic began.
The Reserve Bank of New Zealand lifted its benchmark rate to 0.5% from a record-low 0.25% and signaled more increases over the next year, as it seeks to tame inflation stoked by higher oil prices, rising transport costs and supply-chain disruptions. It said the increase would also drive up mortgage rates and so help cool house prices, up about 30% over the past year.
The policy challenges are different than when the pandemic began, the central bank said.
“Demand shortfalls are less of an issue than the economy hitting capacity constraints given the effectiveness of government support and resilience of household and business balance sheets,” the RBNZ said. It also highlighted a risk that some capacity bottlenecks might persist now that the South Pacific nation is ending its effort to eliminate the coronavirus locally.
New Zealand offers a preview of the challenges that countries may face as they emerge from the pandemic. Rising household debt and inflation have become a bigger threat to some economies than any resurgence of Covid-19 driven by the Delta variant. South Korea and Norway have already tightened monetary policy, while interest rates in more-volatile emerging economies from Brazil to Turkey have also gone up.
At the east coast Port of Tauranga, a hub for container traffic, a lack of workers constrains capacity as demand recovers from the pandemic. Global shipping congestion has thrown schedules into disarray, adding to demands on port staff, spokeswoman Rochelle Lockley said.
The Bay of Plenty region, where the port is located, is known for its kiwifruit industry, which relies on a seasonal workforce from overseas. The closed border means competition for workers is fierce. In many cases, the port is dueling with its own customers for workers such as stevedores, cargo marshallers and drivers of the giant machines that move containers, Ms. Lockley said.
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