How One Covid-19 Case Changed the Plans of the Central Bank

New Zealand from the beginning adopted a different strategy against the Covid-19. The country took measures to eradicate the virus, and for a long time, New Zealand was Covid-free. New Zealand was widely expected to become the first developed country to raise interest rates. The country announced a nationwide lockdown on Tuesday.

One Covid case changed the plans of the central bank. Consequently, the Reserve Bank of New Zealand made the decision not to change interest rates. Analysts mostly expected the country’s central bank to raise rates. Many analysts expected the Reserve Bank of New Zealand to raise the official cash rate by 25 basis points from a record low of 0.50%. But the government’s decision to impose a nationwide lockdown totally changed the situation in New Zealand.

New Zealand and its central bank

Central banks in many countries slashed rates to record lows in a bid to prop up their pandemic-hit economies. Governments all over the world injected billions of dollars into their economies to support their companies.

Authorities in New Zealand kept their Covid cases in check with tough lockdowns as well as shutting of its borders. Due in part to its Covid strategy, the country recorded less than 3,000 cases. Its Covid strategy helped to boost the economy, and the country’s economy surpassed expectations in the first quarter. So, the combination of minimal Covid restrictions and generous stimulus led to a booming economy and rising inflation, leading analysts to expect higher interest rates.

The central bank’s actions would now depend on the scale of the virus situation according to analysts. The pandemic altered the plans of the Reserve Bank of New Zealand. The country’s central bank and other major central banks in the region are not likely to raise rates soon.

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