OCR rise will have 'profound impact' on Kiwi households - economists

It’s the eighth consecutive increase by the Reserve Bank.

The rising cost pressures and inflation felt by Kiwi households has led to the Reserve Bank yet again lifting the Official Cash Rate by half a point, to 3.5%.

The path of “least regrets” continues as the central bank battles inflation.

In the past 12-18 months, mortgage rates have increased from as low as 2% to 5-6% on average.

For borrowers, KiwiBank says the extra 3% on a mortgage of $800,000 is an increase in interest repayments of $24,000 a year.

"There will be a profound impact on discretionary spending, by RBNZ design," Kiwibank economists say.

"Unfortunately, the RBNZ needs to see this pain in households before they are confident they’ll beat inflation back down to 2%."

New Zealand's leading banks have given their predictions at where the official cash rate might end up in 2022.

The Reserve Bank committee had considered raising it by 75 points but decided the previous big hikes had yet to flow through the rest of the economy, so stuck with 50.

"Inflation is too high and employment is beyond its maximum sustainable level," the committee said in making the decision.

The big increase comes in spite of predictions inflation may have peaked. The next inflation data is out in two weeks.

"Global consumer price pressures remain heightened," it said.

"The global demand for goods and services is exceeding supply capacity, putting upward pressure on prices. Food and energy prices are being particularly exacerbated by the war in Ukraine."

The shortage of workers is also putting pressure on the economy, with low migration doing little to fix the problem.

The falling New Zealand dollar is also seen as a risk to inflation.

And it’s not over yet – some big hikes are still likely to come over the next few months.

ASB predicts a rate of 4.25% early next year, Kiwibank 4%, and Infometrics and Westpac 4.5%.

After November there is a three-month gap until the next decision in February.

The Kiwi dollar lifted sharply, and then fell back down again following the Reserve Bank’s decision.

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