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Opinion
Daniel Moss

Is New Zealand Raising Rates Into a Recession?

The country has a record of being quick to increase borrowing costs during a recovery, and undo that work almost as rapidly when growth slows. It’s a lesson for the rest of the world.

No light at the end of this tunnel.

No light at the end of this tunnel.

Photographer: Fiona Goodall/Bloomberg

For New Zealand, having the most hawkish central bank in Asia doesn't go far enough. Officials are intensifying their battle against inflation, even as confidence ebbs and the vital housing industry teeters. Is the country racing toward a recession?

The Reserve Bank of New Zealand raised its benchmark interest rate by a half a percentage point on Wednesday to 1.5%, a larger increase than forecast by most economists. That is the first 50 basis point step in almost a generation, pushing the Kiwi dollar higher and bond yields lower. The bank acknowledged signs of a slowdown, but said inflation is too high for comfort. The goal is to quickly return borrowing costs to neutral, an ambiguous zone that neither stimulates nor hampers the economy. “A more neutral stance sooner will reduce the risks of rising inflation expectations,” the RBNZ said in a statement.