New Zealand raises its interest rate 75 basis points and points to a recession in 2023

The Central Bank of New Zealand uploaded this wednesday interest rates in a record amount and warned that the economy could have to spend a whole year in recession to control the very high inflation.

The Reserve Bank of New Zealand (RBNZ) raised the official interest rate by 75 basis points, to 4.25%, and considers that rates will reach a maximum of 5.5%, compared to the previous forecast of 4.1 percent.

The central bank’s openly aggressive tone surprised some traders, pushing up the local dollar and interest rates in the markets, while its forecasts of recession they also surprised.

The RBNZ projects that the economy will begin to contract in the second quarter of 2023 and will continue to decrease until the first quarter of 2024.

“Inflation is nobody’s friend and to rid the country of inflation we have to reduce spending levels,” RBNZ Governor Adrian Orr told a news conference. “That means we will have a period of negative GDP growth.”

The minutes of the meeting showed that the RBNZ had considered even a one percentage point rise.

Markets were quick to forecast a change in rate expectations.

Two-year rate swaps rose 27 basis points to 5.26 percent. The market is now projecting an interest rate high of 5.54 percent.

The kiwi dollar (New Zealand currency) rose 0.4% to trade at $0.6164.