What will interest rates be in 2023 New Zealand?

The Reserve Bank of New Zealand raised interest rates to 3.5% on Wednesday, the highest level in seven years, with its eighth consecutive increase and fifth consecutive 50 bps increase. Given the severe price pressures, the RBNZ even considered a greater 75 bps rise to remind the markets that central banks are still very much in a hawkish frame of mind. The most recent inflation statistics from New Zealand defied popular expectations that it would decline on Tuesday and hardly budged from 30-year high, alarming analysts and creating new concerns about the efficacy of interest rate rises.

Inflation reached 7.2% annually in the most recent quarter, which is barely below the 7.3% reported at the end of June. Inflation was expected to decline to 6.4% in the most recent quarter, as forecasted by the Reserve Bank, and to 6.5% to 6.9% by major bank experts. The primary causes of inflation were transportation, housing, utilities for the home, and food. Vegetable prices rose to their greatest level in 23 years. According to the statistics, domestic (non-tradable) inflation increased while imported (tradable) inflation began to decline. Grant Robertson, the finance minister, attributed the consistently high statistics to an unstable global economy and said that the government will “continue to carefully focus expenditure,” while the National Party blasted the data for “making a mockery of Labour’s boasts of a thriving economy.”

Jarrod Kerr, a senior economist at Kiwibank, called the discrepancy between the forecast and Tuesday’s actual result “alarming.”
To put it bluntly, “the news was a stunner,” Kerr said, adding that both local and global inflation was substantially higher than expected. Inflation would be pushed down by transportation expenses due to dropping gasoline prices, but that prediction was derailed by an unexpected 20% increase in international airfare. According to Kerr, the central bank of New Zealand was among the first in the world to use interest rate increases to target inflation and price stability, but they are currently “far from it.” It’s very obvious they need to raise [interest rates] more frequently and by greater margins, Kerr said, adding that their failure to fulfil their mandate will only make them more determined to act. “Today’s data will act as a red flag to a bullfighting inflation,” According to Kiwibank, the official cash rate will see an “outsized raise” of 75 basis points (rather than 50bp) from the Reserve Bank in November, eventually rising to 5% in 2023. According to Kerr, this would put homes under even more stress.

“The individual on the street is having a hard time right now, and the prognosis for the home right now is quite unpleasant. The majority of people are currently dealing with much higher interest rates, increased inflation, and a declining property market in several countries, including New Zealand. Countries like the US, which is likewise recording consistently high prices and focused on aggressive rate rises, are questioning the efficiency of interest rate hikes to reduce inflation in the current global setting. Some economists assert that doing so will put off addressing other sources of inflation, such as corporate pricing, rising energy prices, and supply chain disruptions. An increase in interest rates, according to First Union researcher and policy expert Edward Miller, will just increase consumer stress while doing little to reduce inflation.

When it comes to raising local interest rates, Miller said, “there is not a lot that can be done if inflation is being driven by petroleum, fertiliser, and food costs from Russian war-making,” adding that these globally influenced price hikes are only temporary. “They are effectively extending the issue by increasing borrowing rates and passing more expenses onto NZ firms, which in turn raises pricing.” Miller used the price of vegetables as an illustration. Although it is still too soon to determine what caused the most recent increase in vegetable prices, which is one of the main causes of inflation this quarter, the business price index figures from the previous quarter showed that the biggest increases in horticulture expenses were gasoline and fertiliser, followed by rising interest rates.

All of this should serve as more evidence to the Reserve Bank that, for the most part, we are not seeing demand-driven inflation but rather a supply-side shock as a result of a combination of the Russian invasion of Ukraine and supply chain disruptions after the Covid scandal. In an effort to rein in spiralling inflation, the Reserve Bank of New Zealand (RBNZ) raised its benchmark interest rate to 3% on August 17. In Q3 2022, annual inflation reached a 32-year high due to rising housing costs and a severe labour shortage.