New Zealand was set to be the first advanced economy to hike rates. One Covid case put a stop to it

New Zealand was widely expected to become the first advanced economy to raise interest rates, but the central bank left rates unchanged on Wednesday after one Covid case led the country to announce a nationwide lockdown a day earlier. The Reserve Bank of New Zealand said in a statement the decision to hold rates at 0.25% was made “in the context of the Government’s imposition of Level 4 COVID restrictions on activity across New Zealand.”

On Tuesday, Prime Minister Jacinda Ardern imposed a nationwide lockdown when the first Covid case in six months was discovered in Auckland, the country’s largest city. The city will be under lockdown for seven days starting Wednesday, while the rest of the nation will observe a three-day lockdown. Level 4 restrictions are the highest in the country and the most restrictive, where people must stay home and can only leave only for essential services.

As of Wednesday morning, the number of cases detected had risen to seven and were confirmed to be the highly transmissible delta variant, according to Reuters. Paul Bloxham, chief economist for Australia and New Zealand at HSBC called it an “extraordinary 24 hours,” and a “very touch and go knife-edge situation.” “This morning …we find that it’s delta (variant), and, you know, at that point 24 hours ago, the market was thinking that the RBNZ wouldn’t just deliver 20 but 25 (basis points),” he told CNBC’s “Street Signs Asia.”

Analysts mostly expected the central to raise rates, at least until the lockdown was announced. The majority of the 32 economists polled by Reuters expected the central bank to raise the official cash rate by 25 basis points from a record low to 0.50%. Most central banks globally have slashed rates to record lows in a bid to prop up their pandemic-hit economies. Governments around the world have been injecting stimulus into their economies to support businesses.

But New Zealand has been among the most successful in the world to keep their Covid cases in check with tough lockdowns and shutting of its borders. The New Zealand dollar fell to 0.6944 against the U.S. dollar on Wednesday. The currency has been falling since the lockdown announcement on Tuesday, from above the 0.70 level to above 0.69.

New Zealand was set to be the first advanced economy to hike rates. One Covid case put a stop to it, CNBC, Aug 18