New Zealand’s central bank raised interest rates by half a percentage point on Wednesday, the biggest increase in 22 years, on fears that Russia’s invasion of Ukraine would exacerbate soaring inflation.

The Reserve Bank of New Zealand raised its official interest rate by 50 basis points to 1.5%, ahead of the hikes it had flagged for this year.

The decision was announced a day after the U.S. reported an inflation hit 8.5% in MarchIt grew at the fastest pace in 40 years as supply chains struggled to keep up with a post-pandemic demand surge and the war in Ukraine pushed up commodity prices.

The Reserve Bank of New Zealand’s Monetary Policy Committee met on February 23, the day before Russia’s invasion of Ukraine, and raised interest rates by 25 basis points. It also forecasts further tightening in 2022.

But the committee said it had made its decision ahead of time in response to “rising inflation expectations.” From December 2021, the latest inflation reading was 5.9%, up from 1.4% a year ago. The Committee expects inflation to peak at 7% in the first half of 2022.

“The level of global economic activity continues to generate rising inflationary pressures, exacerbated by ongoing supply disruptions driven in large part by Covid-19,” the MPC said.

“Russia’s invasion of Ukraine has greatly exacerbated these supply disruptions, causing a surge in the prices of internationally traded goods and energy.”

new Zealand start raising interest rates After maintaining the official cash rate at 0.25% for 18 months, it increased by 25 basis points last October.

Wednesday’s rate hike coincides with New Zealand’s open border It will open to Australian tourists for the first time since a brief “travel bubble” between the two countries in 2021 before the new coronavirus outbreak prompted Wellington to close the border again.

Australian economist Saul Eslake said New Zealand’s rise “underscores their seriousness about the near-term inflation outlook and their determination to keep it under control”, and expects another 50 basis points to rise next month.

In addition to global inflation pressures, Eslake said the RBNZ was dealing with a tight job market, low target inflation and Authorization to consider room rates in monetary policy decisions.

ANZ chief economist Richard Yesenga said the Reserve Bank of New Zealand was “catching up” with unexpectedly rapid inflation and predicted the bank would raise interest rates by the same amount next month.

“New Zealand is showing a pattern that tends to become more aggressive as the cycle progresses,” he said.

“One of the elements [of today’s announcement] Seems to be a signal that by raising 50 basis points now, it is expected to reduce the number of rate hikes they need over the cycle. “

Australia, New Zealand’s second-biggest trading partner, kept interest rates at a record low 0.1 percent but has signaled a hike in the coming months, despite inflation at a low 3.5 percent by global standards. point.

Eslake said he expected the Reserve Bank of Australia to raise interest rates in June, adding that the country was somewhat unaffected by higher prices due to weak wage growth and an economy that relied on domestic coal rather than imported gas. by Energy prices rise observed in Europe.