RBNZ governor Adrian Orr has warned that the central bank’s continuing focus on constraining inflation will come at a cost to workers, with “employment prospects increasingly compromised” as higher interest rates impact spending and investment decisions.  

In a speech to the INFINZ Conference on Thursday, Orr talked tough as he detailed the multiple threats facing the financial system - from Covid, geo-political tensions, food and energy crises, ageing populations, climate change and a labour shortage.

He reaffirmed the RBNZ would continue to have its “eyes firmly focused” on meeting its inflation target, even at the cost of jobs.

“Returning to low inflation will, in the near-term, constrain employment growth and lead to a rise in unemployment. The actual extent of this trade-off remains unclear however, given the significant labour shortages globally and the very different means of employment being adopted post-Covid.”

Most analysts are predicting the RBNZ will hike the OCR by a whopping 75 basis points on November 23, which would put the Kiwi central bank well ahead of the less-hawkish RBA. 

Orr described the IMF/World Bank “formula for success” in this challenging environment as:

containing inflation in a “goldilocks manner, where tightening is sufficient to tame inflation expectations, but without sending countries into a deep recession; fiscal policy that is targeted at those most in need and kept in place only as long as needed; building improved resilience of financial systems, especially in the growing ‘non-bank’ sectors; and, ongoing structural reforms to enhance productivity.

Orr also confirmed that the results of the review of the RBNZ’s handling of monetary policy over the past five years would be published in mid-November.