WELLINGTON, Nov. 23 (Xinhua) -- New Zealand on Wednesday increased the Official Cash Rate (OCR) to its highest level since December 2008, with the rise of 75 basis points, also the biggest hike since 1999.
The Monetary Policy Committee of the New Zealand Reserve Bank (RBNZ) increased the OCR from 3.5 percent to 4.25 percent to further curb the widespread inflation.
The committee agreed that the OCR needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term, according to an RBNZ statement.
Core consumer price inflation is too high, which was at 7.2 percent currently; employment is beyond its maximum sustainable level; and near-term inflation expectations have risen, it said.
Global consumer price inflation is broad-based and remains heightened. Food and energy prices, and persistent core inflation, have combined to create very high headline inflation in many countries, according to the RBNZ.
Central banks are tightening monetary conditions in an effort to "slow spending and reduce inflation pressure," it said, adding the ongoing slowdown in global growth will affect New Zealand through both financial and trade channels, and impact people's confidence due to uncertainty.
Moreover, the productive capacity of the economy is being constrained by broad-based labor shortages, and wage pressures are evident. Aggregate demand continues to outstrip New Zealand's capacity to supply goods and services, with a range of indicators continuing to signify broad-based inflation pressure, said the RBNZ.
Committee members agreed that monetary conditions needed to continue to tighten further, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range.