The Reserve Bank has today lifted the official cash rate by 75 basis points, taking it to 4.25 per cent, its highest level since 2008.

The RBNZ now sees the OCR rising to a peak of 5.5 per cent in 2023. It has forecast a recession for mid-2023.

The latest forecasts paint a grim picture of four consecutive quarters of negative growth across June, September, December 2023 and March 2024.

Prior to the brief lockdown slump of 2020, the last time New Zealand was in recession was during the Global Financial Crisis of 2009.

 “Members noted that a reduction in aggregate demand is projected to cause GDP in the New Zealand economy to temporarily contract by around 1 per cent from 2023,” the committee said.

“Because the New Zealand economy is starting from a position of very high inflation and acute labour shortages, a period of economic contraction is likely as economic activity declines from elevated levels.

“Employment may fall below its maximum sustainable level for a time."

 “Trying to avoid an economic contraction by limiting any interest rate increases in the near term would likely lead to a longer period of high inflation. In turn, this would likely result in higher interest rates and a larger contraction eventually being required to bring inflation and employment back to a more sustainable path.”

The RBNZ said the monetary policy committee considered lifting the rate by a full 100 basis points.

The New Zealand dollar rallied by about 30 basis points to US61.80c in the minutes following the release.

• Economist expects RBNZ to raise the OCR by 75 basis points
• Reserve Bank set to announce another OCR hike tomorrow

Market pricing was evenly split on whether the RBNZ would deliver a 75 or 50 basis point hike.

“On balance, we expect the bank will deliver 75bps. We’re nearer the end of the hiking cycle than the beginning, wage pressures still look persistent and it’s a long time between drinks for the bank,” ASB senior economist Nathaniel Keall said this morning.

 “With the credibility of central banks under attack, the RBNZ stands to gain more from frontloading tightening than from erring on the side of a smaller hike.”

All the other major bank economists also picked 75 basis points.