New Zealand raised interest rate to 4.25% to fight inflation

WELLINGTON, New Zealand – New Zealand’s central bank raised interest rates by a record amount on Wednesday as it tries to control inflation.

The Reserve Bank of New Zealand raised its benchmark rate by three quarters to 4.25%.

It is the first time the Bank has raised interest rates by more than half a 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%, well within the bank’s target of 1% to 3%. The unemployment rate in the country is 3.3%.

The bank also sharply revised down its forecast peak for the benchmark rate, which it expects to reach 5.5% next year before falling. He predicted that unemployment would rise sharply next year and that the economy would briefly enter a shallow recession.

The New Zealand dollar rose on the news, trading around 62 US cents.

The US Federal Reserve and other central banks around the world have been aggressively raising interest rates to fight inflation. The Fed’s key short-term rate is now set at 3.75% to 4%, up from near zero last March.

Reserve Bank of New Zealand governor Adrian Orr has a message for consumers.

“Think more about your spending. Think saving rather than consuming, I know it’s a strange concept,” he said. “Just cool the planes.”

Orr said the bank’s monetary policy committee agreed that interest rates would need to go higher and faster than previously indicated to ensure inflation returns to its target level.

“Core consumer price inflation remains too high, employment is outside the maximum sustainable level, and near-term inflation expectations have risen. So it’s a fairly high inflation environment,” Orr told reporters.

He said the committee considered raising rates by a full 1% on Wednesday before agreeing to a 0.75% increase.

He said inflation is “nobody’s friend” and a small recession may be needed to bring it down.

“In order to save the country from inflation, we need to cut costs. This means that we will have a period of negative GDP growth, we think at about 1 percent of GDP,” he said. second half of next year.”

Orr said he expects home prices to fall just 20% from their peak last November by the middle of next year. House prices are currently down about 11% from their peak.