RBNZ triple-hikes cash rate to 4.25pc

New Zealand is bound for recession next year according to its central bank , which delivered an eye-watering forecasts and an unprecedented triple-hike of the official cash rate, raising it by 75 basis points to 4.25 per cent.

On Wednesday, the Reserve Bank of New Zealand (RBNZ) lifted rates for the ninth consecutive meeting and upped the predicted OCR peak to 5.5 per cent.

The RBNZ's latest projections suggest pain for Kiwi mortgage-holders, with inflation staying doggedly outside of the target band until late 2024.

The bank's inflation-fighting course will deliver New Zealand a recession beginning in Q2 next year, with four quarters of mild contractions before two further quarters of zero growth.

RBNZ Governor Adrian Orr admitted the cash rate needed to go higher than it previously forecast, and quicker than first thought, to fight runaway inflation currently at 7.2 per cent.

"Inflation is no one's friend," he said.

"In order to rid the country of inflation we need to reduce spending levels. That means that we will have a period of negative GDP growth, we think to the tune of around one per cent of GDP."

Showing the scale of the inflation challenge, the RBNZ's last forecasts, issued in August, suggested an OCR peak of 4.1 per cent. 

Three months on, it has already outstripped that forecast, with further rate rises baked in early next year.

The RBNZ's monetary policy committee mulled increases of 50, 75 and 100 basis points before finding consensus for the triple-hike.

The 75 basis points jump was widely tipped by Kiwi banks but other worsening forecasts have surprised economists.

"The RBNZ out-hawked us all today," ANZ New Zealand chief economist Sharon Zollner said.

"The 140bp upward revision to the forecast OCR peak is massive, but so too have been the upside surprises to inflation, inflation expectations, and the wage outlook in recent months."

ANZ has revised its own OCR peak prediction up to 5.75 per cent, noting global uncertainty.

ASB believe the peak will be 5.5 per cent - with another 75 basis points lift at its next meeting in February, while Westpac was less bearish, forecasting a 5 per cent peak.

"In our view this remains sufficient to bring inflation under control, with borrowers about to encounter substantially higher retail interest rates in the coming months," Westpac acting chief economist Michael Gordon said. 

The decision continues a historic run of rate rises from the RBNZ, which has never before lifted by 75 basis points at a single meeting.

The OCR sat at 0.25 per cent in October last year before the run began, which included five straight double hikes before Wednesday's triple shot.

The NZX 50 was down one per cent on Wednesday, while the New Zealand dollar bounced half a cent against the AUD on the news.