Homeowners feeling pain as OCR cranks up - National

National Party finance spokeswoman Nicola Willis says today's official cash rate decision will be "tough news" for any New Zealander with a mortgage.

The Government says it is "doing [its] bit" to keep minimise inflation and interest rate rises.

It comes as the Reserve Bank announced an OCR increase of 25 basis points, from 5.25% to 5.5% - the first monetary policy statement since the May 18 budget.

When the OCR is lifted, it usually means banks increase mortgage rates, business lending rates and term deposit rates.

The Reserve Bank found demand in the New Zealand economy was slowing, labour supply was improving, and supply-chain bottlenecks easing, but high interest rates were still required to bring inflation and employment objectives into line.

Inflation was lower than expected, but "still too high", and employment was "above its maximum sustainable level" according to the Reserve Bank.

The Reserve Bank makes decisions on monetary policy independently from the Government, but its decisions can be informed by government actions, such as spending.

Willis said the latest hike may have been avoided if the Government had been "more disciplined" with its own spending and done more to take pressure off inflation.

“Instead, Labour’s mismanagement of the economy has delivered New Zealanders the toxic trio of high inflation, rising interest rates and looming recession."

She said the Reserve Bank had warned in February that more Government spending risked pushing inflation and interest rates higher.

She said since then, Finance Minister Grant Robertson had "only poured more fuel on the fire".

“It was obvious there would be costs from the rebuild of the East Coast and Hawke's Bay. Those should have increased the pressure to find savings, particularly in the back-office bureaucracy in Wellington."

She said now New Zealanders were "facing the consequences" and today's hike meant about $1250 more a year for a family with a $500,000 mortgage.

ACT Party leader David Seymour said even if people were " lucky enough to get the goodies from last week’s Budget, any benefits will be eaten up by inflation and interest rate increases in no time".

"If you didn’t get the goodies, it’s higher prices and higher government debt for you."

Seymour said the OCR hike would "hit Kiwis hard" and Robertson was, in his view, "to blame".

"His inability or unwillingness to find savings to offset his increases in spending is going to hurt the average Kiwi far more than they will benefit from his Budget largesse.”

“This latest increase in interest rates will go on mortgages, rents, business loans and rates, as councils look to offset increases in their borrowing costs. We’ll see the impact in more people losing their homes, higher grocery prices, further falls in the housing market and in jobs, as employers look to cut back to save costs.

He said there would be "more pain for longer" due to the Reserve Bank's forecasts.

Green Party revenue spokesperson Chlöe Swarbrick said instead of relying on the Reserve Bank to "use blunt economic tools to reduce demand", the Government could achieve "far fairer outcomes" by taxing wealth.

Asked about the Reserve Bank OCR decision before it was released earlier today, Prime Minister Chris Hipkins said when the Government put together the Budget, it "did carefully consider" the commentary provided in the last official cash rate decision.

The Reserve Bank had wanted the Government to reprioritise to contribute to the cost of recovery from Cyclone Gabrielle and other weather events, and wanted to see government spending decline over the forecast period, and the Government had done both of those things, he said.

"We're doing our bit."

Asked if he would take responsibility if the official cash rate rose, Hipkins said it was important to acknowledge "events" from the beginning of the year that would have an impact on inflation "beyond the Government's control" - the cyclone and floods.

"We said that we were going to see these communities through that, there's an inflationary effect of that."

He said the alternative was to not address those issues which was not up for consideration.

He said it was a "difficult time" for homeowners facing rising interest costs.