The Reserve Bank has raised the Official Cash Rate by 75 basis points to 4.25 per cent in its efforts to combat rising inflation.
The increase has been widely expected because of stubbornly high inflation sitting at 7.2 per cent.
It is the ninth consecutive OCR raise. The raise of 75 basis points is also the biggest hike in the OCR since it was introduced as a monetary policy tool in 1999.
It takes the rate to its highest level since December 2008.
At the previous review of the OCR in on 5 October, it was raised by 50 basis points to 3.5 per cent, a rate last seen in April 2015.
ASB chief economist Nick Tuffley told RNZ earlier this week that the OCR is expected to rise even further in the new year - to levels not seen since the global financial crisis.
He predicted the cash rate would peak at 5.25 per cent in the first half of 2023, but Westpac acting chief economist Michael Gordon says its forecasts are for a slightly lower peak of 5 per cent.
Inflation has soared over the past year, hitting a 32-year-high of 7.3 per cent in the year to June before declining slightly over the subsequent quarter, and consumers are feeling the squeeze as food prices and mortgage rates rise.
National's Finance spokesperson Nicola Willis says much more pain is on the way for Kiwis.
'Never before in the history of the OCR have we seen such a dramatic interest rate increase. This comes as the ninth rate hike in a row, as the Reserve Bank is forced to screw ever tighter on interest rates to try and put a lid on rampant inflation.
'Ominously, the Reserve Bank is not only forecasting a year-long recession, but it believes inflation has not peaked, and will still be higher at the start of next year than it is now.
'This spells yet more worry for the growing group of Kiwis being kept up at night concerned about the growing size of their mortgage payments.
'Half of the mortgages in New Zealand will come up for refixing in the next 12 months. Many already stretched New Zealanders will now have to find hundreds of extra dollars a week to meet their payments.
'Kiwis are getting squeezed in all directions – rent, groceries, and mortgage payments.
'New Zealand needs careful economic management and fiscal responsibility to get us through this difficult period."
5 comments
Nicola Willis......
Posted on 23-11-2022 14:50 | By Bruja
If John Key had not allowed 500,000 (mostly wealthy) people to come and live in this small country in a 9 year span, with no infrastructure for that 500,000 people then we wouldn't have a housing crisis and shortage of housing, which in turn naturally inflates housing prices. The damage that immigration 'free-for-all' has caused will take a generation to fix. The rest of inflation has been nearly totally caused by the pandemic and it is globally mostly worse than NZ. Try again. Try actually having policies instead of negative sniping!
Good
Posted on 23-11-2022 15:49 | By Slim Shady
Many businesses have been hiking up prices 20-30%, even though their costs have not risen by that much. They are cynically using inflation headlines to increase margins and rip people off. People will put the brakes on spending so hopefully the greedy businesses will go under.
The problem
Posted on 23-11-2022 15:57 | By Kancho
The last paragraph says a lot. “New Zealand needs careful economic management and fiscal responsibility to get us through this difficult period" That's exactly what we haven't had. Borrow and spend up has pushed inflation up and yet a much tax ,bigger GST take . Again the government and reserve Bank asleep at the wheel and an inevitable crash into a along recession. Sad to say when this government is driven out for their lack of performance in most areas that count anyone else left to clean up the mess will inherit the poison chalice. Mortgagee sales and devalued properties a sharp hard correction.
The OCR is not a silver bullet.
Posted on 23-11-2022 19:41 | By morepork
Inflation is because there is too much money in circulation, lowering the value of it. (Goods cost more because money is worth less...) This happens when you just print money willy-nilly, and/or borrow recklessly...bringing money into the system which is not backed by goods and services...) The OCR limits money available to people so it has the desired effect of rebuilding its value, but the ONLY true way to solve inflation is to increase productivity so there are more goods and services "taking up the slack" in the value of the money circulating, and simultaneously stopping printing and borrowing. You CAN'T increase productivity without investment, so a spiral occurs. Inflation destroys your savings and robs you, but it is very good for asset-rich people because the value of those assets increases. Guess who runs the country: people with assets or people with savings? Vote for responsible fiscal policy.
@bruja
Posted on 24-11-2022 07:04 | By Slim Shady
There was no free for all. It's actually quite difficult to get residency, even for highly skilled people. And these people bring skills that cannot be filled by Kiwis because they don't go to school and are busy robbing. And regarding inflation being the pandemics fault - hogwash. You're correct in that a lot of countries have similar inflation problems. Some do not. It depends entirely on whether their respective Governments went nuts printing money and borrowing money and splashing the cash about. Like this lot here. We shouldn't be surprised with the result - I'm not. I told Robertson 2 years ago what the result would be and so did the World Bank and OECD. They told him to stop printing and borrowing money. He ignored their report. It's all on record if you care to educate yourself..
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