The Fed of New Zealand said it would reduce monetary stimulus this month by halting bond purchases by quantitative easing, which could be a prelude to raising interest rates later this year.

The monetary policy committee of the central bank of new Zealand kept the official cash rate at 0.25% on Wednesday, but said it would stop bond purchases under its large-scale asset purchase program by July 23.

The Fed of New Zealand said the committee was aware that without sustained monetary support, medium-term inflation and employment were likely to remain below its mandate targets. However, the Committee agreed that the level of monetary stimulus could now be reduced to minimize the risk of failing to meet its responsibilities.

There are signs that the New Zealand economy may be overheating, pushing inflation to the top of the Fed's target range and putting pressure on the labour market. The Fed of New Zealand was one of the first central banks in advanced economies to normalize policy after the pandemic.

The New Zealand dollar rose after the Fed's announcement. The New Zealand dollar was at 70 cents, up from 0.6964 dollars before the announcement.