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NZ Reserve Bank increases rates by 50 basis points

The Reserve Bank of New Zealand has hiked interest rates for the 10th straight meeting, lifting the official cash rate by 50 basis points to 4.75 per cent.

The double-hike was widely tipped by the market and banking commentators, particularly in the wake of Cyclone Gabrielle.

RBNZ governor Adrian Orr said he saw "early signs of price pressure easing" but monetary policy needed to be tightened to fight inflation.

"Core consumer price inflation remains too high, employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated," he said.

Tipping the move, ANZ chief economist Sharon Zollner said the 50bp rise was the "clear path of least resistance".

The hike will bring pain for mortgage-holders, but Finance Minister Grant Robertson wouldn't be drawn on the merits of a 50bps shift.

"It's got a job to bring inflation down ... inflation is a scourge, particularly for low and middle income earners," he said.

At the last monetary policy meeting of the central bank in November, Mr Orr announced an unprecedented triple-hike of 75 basis points, declaring he would do so again this month.

However, since that meeting, New Zealand has had softer than expected inflation data and two major weather events.

Consumers price index (CPI) inflation fell from 2.2 per cent to 1.4 per cent from the September to December quarters last year.

Annually, CPI is at 7.2 per cent, slightly below its peak of 7.3 per cent last year, and well above the target band of 1-3 per cent.

Last month, Auckland suffered record rainfall that produced flooding in New Zealand's biggest city, and last week, the arrival of Cyclone Gabrielle brought widespread destruction and flooding to several North Island regions.

Mr Orr, who often speaks about a "least regrets" policy, appears to have deferred his planned triple hike in light of the storms.

"Cyclone Gabrielle and other recent severe weather events have had a devastating effect on the lives of many New Zealanders," Mr Orr said.

"It is too early to accurately assess the monetary policy implications of these weather events."

The central bank has largely left its official cash rate track in place, predicting a 5.5 per cent peak by year's end.

New Zealand's sharp raising of rates outdoes the Reserve Bank of Australia, even though Australia has higher CPI inflation.

Since setting sail on its upwards path in October 2021, the RBNZ has hiked rates from 0.25 per cent to 4.75, or 450 basis points.

Australia got moving in May 2022, lifting the cash rate from 0.10 per cent to 3.35 per cent, or 325 basis points.

The RBNZ has also tweaked its predictions for the economy, confirming predictions for a recession this year, but suggesting it will be swifter and sharper than first thought.

It sees the Kiwi economy contracting by 0.5 per cent in the June quarter and staying in the red until 2024.

On top of increased interest rates, the RBNZ also had another slice of bad news for mortgage-holders, worsening its house price outlook.

It believes houses will fall 23 per cent in value from their November 2021 peak before beginning to rebound.