The increase, which can raise the borrowing costs for consumers on everything from credit cards to mortgages, comes despite the economic pain that a devastating cyclone is already inflicting on many people. The bank said that over time, the cyclone rebuild will only add to inflationary pressures.
Reserve Bank Governor Adrian Orr said the committee that makes interest rate decisions agreed the rate needed to increase to ensure that inflation returned to the bank's target of around 2% from its current level of 7.2%. "Cyclone Gabrielle and other recent severe weather events have had a devastating effect on the lives of many New Zealanders," Orr said. "It is too early to accurately assess the monetary policy implications of these weather events, given that the scale of destruction and economic disruption are only now becoming evident."
The 0.5% rate rise comes after a record 0.75% hike in November. At 4.75%, the official cash rate is at the highest level it has been since early 2009, soon after the global financial crisis.