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New Zealand's central bank hiked interest rates on Wednesday by a record amount as it tries to get inflation under control.
The Reserve Bank of New Zealand increased its benchmark rate by three-quarters of a point to 4.25 per cent.
It's the first time the bank has raised rates by more than a half-point since introducing the Official Cash Rate in 1999. The new rate is the highest in New Zealand since early 2009.
New Zealand's inflation rate is currently 7.2 per cent, well above the bank's target of 1 per cent to 3 per cent. The nation's unemployment rate is 3.3 per cent.
The bank also sharply revised upwards its projected peak for its benchmark rate, which it now expects it to reach 5.5 per cent next year before it decreases. It predicted a sharp rise in unemployment next year and for the economy to dip briefly into a shallow recession.
The New Zealand dollar rose on the news and was trading at around 62 US cents.
The US Federal Reserve and other central banks around the world have been aggressively hiking interest rates to battle inflation. The Fed's key short-term rate is now set at 3.75 per cent to 4 per cent, up from near zero as recently as last March.
New Zealand Reserve Bank Governor Adrian Orr had a message for consumers.
Think harder about your spending. Think about saving rather than consuming, I know that's a strange concept, he said.
Just cool the jets.
Orr said the bank's monetary policy committee had agreed that interest rates needed to go higher, and sooner than previously indicated, to ensure inflation returned to its target level.
Core consumer price inflation remains too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen. So this is quite a heightened inflation environment, Orr told reporters.
He said the committee had considered raising rates even more on Wednesday, by a full 1 per cent, before settling on the 0.75 per cent hike.
He said inflation was no-one's friend and that a small recession might be needed to get it down.
In order to rid the country of inflation we need to reduce spending levels. That means that we will have a period of negative GDP growth, we think to the tune of around 1 percent of GDP," Orr said.
So in that sense it's a shallow period and at the moment, we're saying that's around the second half of next year.
Orr said he expects house prices to decrease by a total of 20 per cent by the middle of next year from their peak last November. House prices are currently down by about 11 per cent from their peak.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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First Published: Wed, November 23 2022. 10:33 IST