The central bank of New Zealand increased interest rates by 75 bps on Wednesday. To a level that is almost 14 years high. And signalled that there will likely be other increases in the near future as it tries to control inflation that has remained persistently high.
The rate, often called as the official cash rate, saw its highest increase since it was introduce in 1999.
It happens after the nation’s annual inflation rate for the three months ending in September was 7.2%.
As the global economy recovers from the epidemic and also the war in Ukraine drives up the price of fuel and food.
New Zealand has experienced a substantial increase in the cost of living, much like the rest of the world.
The country’s economy will enter a recession in September of next year, according to the RBNZ’s most recent forecasts.
The typical definition of a recession is when the economy contracts for two consecutive quarters of three months.
Why are Interest Rates getting so High in New Zealand ?
The RBNZ stated in a statement that “an economic contraction is likely” since New Zealand economy is entering from a situation of very high inflation and severe labour shortages.
“It is likely that attempting to delay interest rate hikes in the near future will result in a lengthier time of high inflation. In turn, this would probably lead to higher interest rates and even a deeper recession ultimately needed to return employment and inflation to a more sustainable path. “has said.
Grant Robertson, the finance minister for New Zealand. Stated during such a parliamentary hearing at Wednesday that 2023 will be the “year of reckoning” for the global economy.
Mr. Robertson continued, “Countries will either be in a recession or look like they are.“
The New Zealand currency rose against the US dollar to a three-month high following the RBNZ interest rate announcements before slightly declining.
In a survey, 15 out of 23 analysts predicted the Reserve Bank of New Zealand (RBNZ) would raise interest rates by 75 basis points. Marking the ninth straight increase since it started tightening in October 2021.
According to the monetary policy statement. It now anticipates the cash rate to reach its maximum level of 5.5% in September 2023.