24 Nov 2022

OCR hike: Adrian Orr apologises for 'significant economic shocks', accepts RBNZ engineering recession

4:00 pm on 24 November 2022
Governor of the Reserve Bank Adrian Orr.

Adrian Orr has been explaining the Reserve Bank's latest decision on the OCR to Parliament's finance and expenditure committee. Photo: RNZ / Dom Thomas

The Reserve Bank says it is trying to engineer a recession to bring down high inflation.

The central bank delivered a record 75-basis point interest rate hike yesterday, taking the official cash rate to its highest level in 14 years, to 4.25 percent.

It has also forecast a shallow recession from the middle of next year, partly because of the higher interest rates it is imposing.

Annual inflation is near a 30-year high at 7.2 percent.

Responding to questions from MPs at the finance and expenditure committee this morning, RBNZ governor Adrian Orr accepted commentary that the central bank was deliberately engineering a recession to combat super-charged inflation.

"I think that is correct. We are deliberately trying to slow aggregate spending in the economy. The quicker inflation expectations come down, the less work we need to do and the less likely it is that we have a prolonged period of low or negative growth," he said.

The RBNZ forecast a recession next year with an official cash rate of about 5.5 percent.

However, Orr reaffirmed previous comments that the country was well placed to face the economic storm ahead.

"We have very resilient balance sheets across households, businesses and the government in this economy."

'We are sorry'

The Reserve Bank governor also offered an apology to New Zealanders for the significant economic shocks households faced.

Orr admitted households were paying the price because monetary policy was too stimulatory for too long.

But before that, he offered an apology on behalf of the central bank's monetary policy committee.

"We are sorry that New Zealanders have been buffeted by these significant economic shocks and are experiencing inflation well above our central bank 1 to 3 percent target range," Orr said.

He repeated that "inflation is nobody's friend" and said it led to significant economic costs.

"I do want to want to reaffirm the committee's absolute commitment and confidence to getting inflation back to within the target range."

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