OCR hike: How politicians reacted to the Reserve Bank's latest increase

The National Party says the Reserve Bank's latest official cash rate (OCR) hike is "unprecedented" and shows "how entrenched inflation has become".

ACT is also concerned the "double shot" jump will just mean "more pain on the horizon for mortgagees".

But Finance Minister Grant Robertson has stressed it's a decision by the independent RBNZ and it's his job to use Government levers to support Kiwis.

"It's a decision that the Reserve Bank makes independently on the basis that it has a job to bring inflation down," he said. "My job is to make sure we use fiscal policy - what the Government does - to be able to support New Zealanders and that's where my focus is."

Robertson said the Government would "continue to support New Zealanders with the pressure that is on the cost of living".

"One of those pressures is what they pay for their housing, be that as renters or be that as homeowners. We are acutely aware of that. We have said it will be a priority in the Budget and it will be."

The Reserve Bank's first OCR decision for the year was a 50 basis point hike, taking the rate to 4.75 percent. That's up 450 basis points since October 2021.

The point of raising the OCR is to combat inflation. By hiking interest rates, the RBNZ is attempting to take demand out of the economy and bring down prices. The RBNZ has a target of keeping inflation between 1 and 3 percent. In the December quarter last year, it was at 7.2 percent. 

"Increases of 50 and 75 basis points were considered," the RBNZ's Monetary Policy Statement (MPS) said. "The Committee assessed that, while the balance of risks around inflation remain skewed to the upside, the extent of this risk had moderated somewhat since the November Statement."

In the MPS, the RBNZ continued to predict the OCR to peak at 5.5 percent by the year of the year. Inflation is expected to peak at 7.3 percent in the March quarter, while a technical recession is still forecast for later in 2023.

Like the Government, the RBNZ still needs time to assess the full impact of Cyclone Gabrielle.

"While it is too early to estimate the full economic impacts, near-term rebuilding and restocking are likely to lift the level of economic activity, and consumer prices for some goods and services will come under upward pressure given supply-chain disruption and product scarcity. 

"Weaker export volumes will impact negatively on export earnings as a result of these extreme weather events. It remains unclear how significant the impact of these events will be on New Zealand's longer-term productive capacity."

Reacting to the decision, National's Nicola Willis said it was "unprecedented" to have had 10 consecutive rate hikes. 

"The pace and scale of interest rate hikes show just how embedded inflation has become in New Zealand. With inflation falling rapidly in many countries overseas, forecasts released today suggest inflation will remain high in New Zealand through the rest of the year," she said.

Willis said New Zealand's inflation rate is higher than in the United States and Canada despite those countries' rates peaking higher. 

She said this is down to domestic issues, like "rampant Government spending and broken immigration rules", while the Government has consistently pointed to international factors such as supply chain disruptions. 

"Today's rate hike will be deeply concerning for Kiwis already struggling with the cost of living. With wages struggling to keep up with prices, rapidly climbing mortgage costs will leave many families falling further and further behind," Willis said.

"Half of the mortgages in New Zealand will come up for refixing in the next 12 months. Many already stretched households will now have to find hundreds of extra dollars a week to meet their payments."

Willis argued that while New Zealand may have a new Prime Minister, the Government's approach to the economy remains the same and the country needs National's economic management.

Here's how politicians reacted.
Here's how politicians reacted. Photo credit: Newshub.

ACT's David Seymour agreed the OCR jump is a "hammer blow for many Kiwi households". 

"Some of whom have had their homes destroyed by Cyclone Gabrielle and are now facing a hike in interest rates to boot. Despite this, Grant Robertson refuses to reprioritise Government spending to help pay for the cleanup."

Seymour questioned Robertson at Wednesday morning's Finance and Expenditure Committee on whether ministers had been asked to look again at reprioritising projects in the wake of Cyclone Gabrielle. The Finance Minister responded by saying reprioritisation is constantly looked at.  

"The Government needs to offer the Reserve Bank a lifeline," said Seymour. "The Governor has often said 'monetary policy needs friends.'

"Instead, Adrian Orr has been left with an impossible choice. He either hikes the OCR and makes life harder for mortgagees, or he puts the brakes on and inflation hangs around stronger for longer. Either way Kiwis lose until the Government can cut wasteful spending."

When Chris Hipkins became the Prime Minister in January, he said his focus was on cost of living issues. Later, he announced an extension to the fuel excise duty cut and half-price public transport fares. A number of policies, like the TVNZ-RNZ merger, have also either been axed or deferred.