RBNZ raises interest rate to highest level in 13 years

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RBNZ raises interest rate to highest level in 13 years

New Zealand's central bank raised its key interest rate to the highest level in over 13 years in response to rising prices.

Since the official cash rate was introduced in 1999, that was the biggest rise.

The country's inflation rate stood at 7.2% in the three months to September.

Like much of the rest of the world, New Zealand has seen the cost of living go up as the global economy emerges from the Pandemic and the war in Ukraine has pushed up the cost of fuel and food.

The RBNZ forecasts also pointed out the country's economy falling into a recession in September next year. A recession is when an economy shrinks for two three month periods in a row, or quarters, usually in a row.

The RBNZ said that because the New Zealand economy is in a position of very high inflation and acute labour shortages, an economic contraction is likely to occur.

Trying to avoid an economic contraction by limiting interest rate increases in the near term would likely lead to a longer period of high inflation. It added that this would likely result in higher interest rates and a larger contraction that would ultimately lead to inflation and employment returning to a more sustainable path.

Hope is not a strategy. The RBNZ Monetary Policy CommitteeRBNZ Monetary Policy Committee gets that, and deserves a pat on the back for facing the challenges head-on. ANZ Research said that high inflation is looking increasingly entrenched, and dithering will make the problem worse, and that it will only make the problem worse.

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