Kiwibank Chief Economist Jarrod Kerr on what needs to happen before the Reserve Bank takes its foot off the rate hike pedal
The Covid-19 pandemic has been a really challenging time, the likes of which we haven't experienced since World War Two. And it's against this backdrop that the Reserve Bank is waging its fight against the highest inflation since the 1980s, Kiwibank Chief Economist Jarrod Kerr says.
Speaking in a new episode of interest.co.nz's Of Interest Podcast, Kerr says he expects the Reserve Bank to increase the Official Cash Rate by 75 basis points to 4.25% when it reviews the OCR for the last time in 2022 on November 23.
"It is an aggressive move but the war on inflation is far from over," Kerr says. "The deceleration back towards price stability is going to take some time."
By the time the Reserve Bank is next scheduled to review the OCR, on February 22 next year, Kerr expects to see a significant slowdown in household consumption, further signs of a slowdown in global economic growth, and "hopefully" a slowdown in inflation.
"By the end of next year I think enough will have been done that we'll actually be in a situation where central banks, including the Reserve Bank, will start to ease monetary policy into 2024. So more hikes, more pain near term, a cash rate of 5% which sees mortgage rates staying around current levels if not a little bit higher. And then hopefully by the end of next year, the war on inflation will be won and we'll see central banks starting to reduce interest rates," says Kerr.
In the podcast he talks in detail about the inflation picture including core inflation, the labour market and why the Reserve Bank wants to see a rise in unemployment, plus the role of government fiscal policy. Kerr also discusses just how disruptive the Covid-19 pandemic has been to the economy, when the world last witnessed shocks of this magnitude with war-time settings such as closed borders and disrupted supply chains, and the changes this has wrought on the economy.