By James Glynn
SYDNEY--The International Monetary Fund has called for higher interest rates in New Zealand to contain inflation, while admitting the economy has been hit hard by oil shocks.
In its latest report card on the state of play in the South Pacific economy, the IMF said policy makers face difficult choices, but added that "monetary policy should gradually withdraw policy accommodation to ensure medium-term price stability."
The comments come ahead of a policy meeting at the Reserve Bank of New Zealand next week, with some economists warning that an interest-rate increase would further undermine the chances of recovery after years of underperformance.
"The New Zealand economy is being subjected to frequent shocks, underscoring the importance of the strong policy framework that underpins macroeconomic stability . . . and a credible central bank," the IMF said in its Article IV review.
The increase in global oil prices since February raised domestic fuel prices in New Zealand by 37% and doubled diesel prices by mid-April, though these increases have eased significantly in recent weeks, the report said.
The fuel shock has seen inflation rise above the RBNZ's 1% to 3% target band in recent months.
Since the onset of the war in the Middle East, the RBNZ held rates constant at its April and May meetings as oil-related price pressures increased.
RBNZ Governor Anna Breman has stated that she feels the inflation target must be achieved and that the central bank will act decisively.
Write to James Glynn at james.glynn@wsj.com