Retailers are reeling after the Reserve Bank of New Zealand (RBNZ) lifted the official cash rate (OCR) for the second time since early July. The 25-basis-point increase takes the base interest rate to 2.75 per cent and will prompt banks to reduce mortgage interest rates.

RBNZ’s monetary policy committee reached a consensus vote on the decision after a “lacklustre” second fiscal quarter of growth for the country’s economy. The news, however, has been slammed by Retail NZ.

“It has been a challenging few years for all Kiwis, with high unemployment and the rising cost-of-living continuing to hurt household budgets,” said Retail NZ chief executive, Carolyn Young. 

“An OCR increase like this will have an immediate impact on our retailers, as New Zealanders are forced to cut back on spending to meet higher mortgage and rent costs.” 

Young also criticised the rate increase in July, which the RBNZ decided on after the beginning of the US-Iran war and closure of the Strait of Hormuz.

“Retailers have been doing everything possible to absorb costs as best they can, rather than pass them on to hard-pressed consumers,” she added. 

“As a result of the OCR rise, retailers will likely be hit twice as costs go up and spending falls, with homeowners forced to recalibrate their spending to cope with higher mortgage payments.” 

The committee said that weak income growth, job insecurity, and flat house prices are having a continued impact on household spending. “The committee judges that gradually removing monetary stimulus is appropriate to return inflation to the 2 per cent target mid-point while supporting growth and employment,” it said in its announcement.

“This decision reduces the risk that the OCR needs to increase by more later.”