New Zealand interest rate hike raises pressure on central banks over inflation

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New Zealand’s central bank has lifted interest rates for the second time in as many months to 0.75%, with many forecasters expecting borrowing costs to rise to at least 2% by next year and possibly higher.

In a warning signal for central banks around the world as they struggle to contain inflationary pressures, the Reserve Bank of New Zealand (RBNZ) raised the official cash rate by 25 basis points to 0.75% as expected in its final policy meeting of the year on Wednesday.

The RBNZ’s forecasts signalled a more aggressive tightening cycle, reaching 2.5% by 2023 and going higher by December 2024.

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Its governor, Adrian Orr, warned that homeowners in New Zealand’s red-hot housing market had to prepare for tougher times ahead.

“Homeowners who have just entered the market with extremely high leverage levels have to be incredibly wary and have to understand they have to weather the higher interest rates,” Orr said.

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