The official interest rate has risen as inflation continues to bite

The price spike led the Reserve Bank to raise the official interest rate from 0.5% to 2%.

The Monetary Policy Committee raised the official exchange rate (OCR) “to continue to tighten monetary conditions at the pace necessary to maintain price stability and support maximum sustainable employment.”

He said a “larger and earlier increase in the OCR reduces the risk of inflation persistence, while providing greater policy flexibility going forward given the highly uncertain global economic environment.” .

The change in the OCR comes after inflation hit levels not seen in decades due to supply problems caused by the pandemic and rising energy and food prices due to the war in Ukraine.

People with unfixed mortgages will feel the pain of the latest hike while savers will likely benefit.

Today’s rise follows a similar rise of 0.5% to 1.5% in April, following a rise of 0.25% in February this year, and the same amount in November and October 2021.

National’s Nicola Willis said the 50 basis point increase “means more pain on the horizon for anyone with a mortgage.”

“Rising interest rates will be bad news for Kiwis who are already battling the cost of living crisis.”

The Reserve Bank predicts an increase for June 2023 of up to 3.9% – with February peak forecast to 3.4% at the end of 2024.

The annual average OCR projection for 2023 is 2.9%, 3.9% in 2024 and 3.8% in 2025.

The Committee said that once supply and demand “are more in balance”, the OCR can move to a lower level.

The OCR had remained at 0.25% from March 2020 to August 2021, after falling 0.75% from 1% in March 2020.

In April, the Reserve Bank’s monetary policy committee said an increase was needed to try to maintain price stability and support high employment levels.

The Reserve Bank found in 2021 that moves in OCR generally have the biggest impact on short-term mortgage rates, typically one year or less.

READ MORE: The Reserve Bank is set to raise its benchmark interest rate to its highest level in six years as it joins the battle against soaring inflation.

It comes as inflation hit 6.9% in April, which was the biggest move since June 1990.

ANZ chief economist Sharon Zollner told 1News last month that while interest rates affect “incredible numbers of people, inflation affects everyone”.

“Basically, [the Reserve Bank] think neutral OCR, the rate at which they are neither on the accelerator nor on the brake, is probably around 2%,” she said at the time.

“So their strategy seems to be to get there quickly and then maybe see how things pan out and maybe take it a little easier from there.”

Zollner said inflation is a global problem that doesn’t just affect New Zealand and that while the country may be on the verge of a bumpy ride, she hopes for a “soft landing”.


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