The Reserve Bank has delivered its biggest-ever official cash rate (OCR) hike as it tries to tame stubbornly high inflation.
It's raised the OCR by 75 basis points to 4.25 percent, the highest it's been since 2008.
The Reserve Bank (RBNZ) has now added 400 basis points to the OCR since October last year.
And, in what made for grim reading, the RBNZ's monetary policy statement predicted a recession in the middle of next year and forecast the OCR peaking at 5.5 percent.
"This economic contraction will, in part, be a result of higher interest rates, as the Reserve Bank acts to reduce inflation and return employment to a more sustainable level," the statement said.
"It will, therefore, differ from contractions experienced in New Zealand in recent decades when poor economic outlooks, often related to international conditions such as those during the global financial crisis, were cushioned by lower interest rates."
'Clear rush'
Minutes of the RBNZ meeting showed its monetary policy committe even debated hiking the OCR by 100 basis points on Wednesday, given the intense price pressures in the economy.
"The RBNZ matched economists' expectations with its 75bp hike. But the RBNZ's stance was very hawkish, including discussing the potential for a 100bp hike," ASB chief economist Nick Tuffley said.
"From here, we expect the RBNZ to hike the OCR by 75bp in February and by 50bp April, to a peak of 5.5 percent (previously 5.25 percent).
"We do note that our inflation forecasts are lower than the RBNZ's in the near term, so there is the risk that the RBNZ doesn't quite get to 5.5 percent. But from the vantage point right now, the RBNZ is demonstrating a clear rush."
The RBNZ warned demand continued to outstrip New Zealand's capacity to supply goods and services.
Its latest move comes as inflation runs at near record highs, accelerating to an annual rate of 7.2 percent in October, while unemployment was close to historic lows (3.3 percent).
New Zealand also remained critically short of workers, with migration yet to recover from COVID-related border closures.
"The ongoing slowdown in global growth will affect New Zealand through both financial and trade channels and impact on people's confidence due to uncertainty," the RBNZ said. "The productive capacity of the economy is being constrained by broad-based labour shortages, and wage pressures are evident," it said.
