Budget 2023: Treasury predicts interest rates will 'stay higher for longer' due to Cyclone Gabrielle

For first-home buyers and the large number of Kiwi homeowners rolling off fixed mortgage rates this year, the Government's Budget 2023 could be a letdown. Instead of bringing interest rates down, Treasury said the Budget will push them up.

The Treasury predicted in its Budget 2023 update that interest rates are likely to "stay higher for longer" to manage inflationary pressure.

It said the North Island weather events comprised of the severe weather that hit Auckland in late January, followed by Cyclone Gabrielle in February, will have fiscal implications, with the rebuild meaning interest rates are "not expected to decline to the extent they may have otherwise".

Appearing on The Project, Prime Minister Chris Hipkins said the cyclone is going to have an effect on the Government's finances and the broader economy.

"I am not willing to sit here and say that we decided not to rebuild after the cyclone in order to try and keep inflation down," he said.

Hipkins said one of the most important things the Government can do is get inflation back to the one to three percent target range - which the Treasury expects will happen by the end of next year.

"Inflation has already begun moderating, and the Treasury expects further moderation ahead, with inflation falling to 4.5 percent by the end of 2023 and dropping inside the Reserve Bank's target band of 1-3 percent inflation by late-2024," Treasury said.

But for Kiwis that feel as though they are missing out after this year's Budget, Hipkins has a message.

"One of the main messages for New Zealanders out of this Budget is that we're focused on getting the economic balance right so that we can tackle the cost of living," he said.

"With inflation running hot, we've seen the cost of living going up every time you go to the supermarket, we've seen interest rates going up - every household feels the effect of those things. 

"Getting inflation back down means every household will benefit from that."

In time, Hipkins said that will ultimately lead to lower interest rates.