-
Watch Video
-
Related
The Reserve Bank has raised the Official Cash Rate for the second time in six weeks, lifting the rate today to 3.0%.
Governor Dr Alan Bollard announced the 25 basis point increase today and called it an "appropriate move".
It is likely to mean floating mortgage rates will also increase by a quarter of a percent shortly.
The rise was widely expected but unions, farmers and commentators, including the New Zealand Institute of Economic Research (NZIER), had all called on the bank to hold the rate at 2.75%, arguing that New Zealand's recovery was still too fragile to raise rates.
Corin Dann, TVNZ's Business Editor, said the Governor had a hard decision to make with some contradictory data emerging.
"Some of the recent economic data and business confidence figures were weaker than Bollard had forecast in his June decision but they were obviously not enough to shake him from his conviction that New Zealand needs to get back to a more normal interest rate footing post-recession."
Bollard said he had factored in the weaker domestic data including the deterioration in growth prospects, drop in commodity prices, retail spending down, net migration slowing and business investment not growing.
He also highlighted some positives like GDP growth and manufacturing confidence staying up.
"Given (these factors), some further removal of monetary policy stimulus is appropriate at this stage. Even after today's move, the level of the OCR is still very supportive of economic activity. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement."
The RBNZ also had to consider the coming inflation spike and the international pressures like the growing fear of a double-dip recession in the US.
The Bank raised the OCR to 2.75% in June after holding it at 2.5% since April 2009.
Warnings widespread
And there were warnings that hiking the OCR just strangles any economic recovery.
"The Reserve Bank needs to be really careful about nurturing an economy out of the biggest recession we've had since the early '90s," said Shamubeel Equab, NZIER Principal Economist.
That's a view increasingly gaining support.
Bill Rosenberg of the Council of Trade Unions said the increase was likely to contribute to increasing the exchange rate, which would hurt exporters.
"It's likely to put off some businesses from investment, both of which will affect jobs."
Alasdair Thompson of the Employers and Manufacturers Association said the OCR should now be put on hold.
"I think we should sit on 3% for quite some time yet before we carry on moving it up."
