Reserve Bank (RBNZ) Governor Adrian Orr's ongoing aggressive approach to monetary policy tightening increases the chances of a hard landing for New Zealand's economy, according to financial experts.
Orr's made huge increases to the official cash rate (OCR) since late 2021 and, as of Wednesday, has added 50 basis points to try and bring spiralling inflation - sitting at 7.2 percent - under control.
The National Party said Wednesday's 50 basis point OCR hike was a "shock" and a "punch in the guts" for New Zealanders.
Meanwhile, ACT Party leader David Seymour said Orr had "impossible" decisions to make.
"He either hikes the OCR and makes life harder for mortgagees or he puts the brakes on and inflation hangs around stronger for longer," Seymour said in a statement. "Either way Kiwis lose until the Government can cut wasteful spending."
Milford Asset Management investment analyst Katlyn Parker told AM the RBNZ's approach surprised the market, which was expecting a 25 basis point move.
The ongoing aggressive approach comes in the wake of Cyclone Gabrielle. While the cyclone rebuild was already expected to boost the economy and consumer prices, inflationary impacts were "likely to be somewhat larger than assumed", the RBNZ said.
Parker believed the RBNZ was still looking to dampen economic demand.
"The best way, and a very effective way to do that, is to keep mortgage rates at current levels," she said. "The 0.5 percent increase that they delivered - that's another outsized increase and that actually does increase the chances of a hard landing. So in [the] coming days, when the market starts to really digest this and realise that, 'Hey, we actually could have a much [more] severe and quicker recession, you could actually see wholesale rates price a bit lower."
Infometrics chief executive Brad Olsen agreed the RBNZ risked going too far and engineering a deeper recession.
"We cannot fathom that the Reserve Bank would be able to hit pause on interest rate increases within the next 2-3 months after this increase," Olsen said in a statement on Wednesday.
"There's more OCR raises to come, until such time as there's some clear evidence of inflation beginning to moderate.
"As we see it, there's no evidence yet to assure the Reserve Bank that it's successfully dampening hot demand, which is still outstripping supply."
The RBNZ said on Wednesday the latest increase was the result of "persistently high domestic inflation".
Infometrics now expects New Zealand's OCR to rise to a peak of 5.75 percent, up from its earlier 5.5 percent prediction.
