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Daniel Moss

How a Single Covid Case Derailed a Central Bank

The Reserve Bank of New Zealand blinked on its plan to raise rates. If history is any guide, it shouldn’t rush to get back on course.   

Blinky blinky.

Blinky blinky.

Photographer: David Paul Morris/Bloomberg

New Zealand made the right call to shelve a widely anticipated interest-rate increase. The central bank should resist the temptation to merely delay by a month or two. The global recovery has probably peaked and the most consequential monetary authorities in the world are loath to contemplate tightening for at least a year. This isn’t the time for New Zealand to be ahead of the curve.   

The Reserve Bank of New Zealand kept its benchmark rate at 0.25% Wednesday after a national lockdown — announced because of a single case — injected last-minute drama into a decision many economists previously thought was a sure thing. While the country lived Covid-free for months, officials have confirmed seven infections the past two days. The shift was enough for the RBNZ to demur.

That Governor Adrian Orr still wants to hike is clear. The “least regrets” policy stance involves further reducing monetary stimulus to keep inflation in check and buttress employment, the bank said in a statement. Officials agreed, “however, to keep the [rate] unchanged at this meeting given the heightened uncertainty with the country in a lockdown.” Projections published by the RBNZ show the official rate climbing at least once later this year.