New Zealand central bank raises rates 25 bps - A start, but not a constraint on speculation

The New Zealand Reserve bank raised rates 25 bps to a new level of 50 bps this week, the first increase in seven years, yet this action will not change the NZ inflationary picture. Real rates are still just inside negative 3 percent because current inflation is above 3 percent and still rising. Speculation will continue when real rates are so negative.

The move by central banks to normalization has begun around the globe with a push raise nominal rates and limit the real rate extremes. However, given the high inflation in many countries like New Zealand, there is no real change in the monetary liquidity situation. There are no binding constraints on money, so housing bubbles will continue.