New Zealand's Central Bank announced on Thursday that interest rates were clearly in contraction territory because the increased rates caused a slowdown in demand of the economy.

However, it still needed to be clear that inflation expectations existed in an under-control situation. Paul Conway, Reserve Bank of New Zealand's (RBNZ) Chief Economist, said that if the 450 basis point rises in the official cash rate in the last 18 months.

Through the economy, there will be opportunities to push further weigh on consumer spending, while inflation is still at a high level. At 7.2%, inflation in New Zealand is near a three-decade high and is above the central bank's target of 1% to 3%.

The short-term inflation expectations in the first Quarter are just above 5.5%, according to RBNZ data. But he added that inflation expectations did not fall.

"Ob balance, the calculation of the central bank of neutral interest rate, is neither stimulatory nor contractionary. This also indicates that the OCR is now at a level above comfortable. So there may be a contractionary effect from the bank," said Paul Conway.

New Zealand's Four Quarter GDP Falls Below Expectations as it Falls 0.6%, Rate Hikes and High Inflation Become Main Concerns

Paul Conway said that there would be welcome signs of slowing demand. It is given recent events and the ongoing impact of the pandemic. So the forecast for the economy is now leading to something very challenging.

Apart from all that, what has also become a record is that New Zealand's economic growth missed expectations in the fourth Quarter. Based on data released on Thursday, the Gross Domestic Product is shrinking amid pressure from a sharp rise in interest rates.

GDP also shrank 0.6% in the three months to December 31. From the prior Quarter, more than expectations for a drop of 0.2%. On an annual basis, GDP also rose by around 2.2%, mainly due to ducking expectations for growth of 3.3% and blew weakening business activity.

Meanwhile, New Zealand consumer inflation remained pinned near a 32-year high. Reserve Bank of New Zealand undertook an aggressive rate hike spread.

The Official cash rate has increased by 450 basis points since mid-2021, making the Central Bank recently warn regarding inflation developments. Furthermore, what is noteworthy from Thursday's data is that the New Zealand dollar fell as much as 1.2% after the GDP reading.

This is a sign that its losses and trading sideways. While fears of the US interest rates also sapped sentiment towards the New Zealand currency now.

Reserve Bank of New Zealand Hikes Having Desired Effect on Economy, But Economy Might Still Shrink in the Fourth Quarter

Now, New Zealand's economy shrank in the last Quarter. The aggressive interest rate by the central bank is the leading cause here. But what is most worrying is the contraction below the revised 1.7% rise seen in the 3rd Quarter, and annual growth slowed to 2.2%.

The Reserve Bank of New Zealand also undertook its most aggressive policy tightening. That could now occur by the first Quarter, and GDP growth remains negative.

The Reserve Bank will also call on interest rates, wage inflation, house prices, and development, which is the standard operating procedure. Fourth Quarter contraction I growth confirms that the RBNZ doesn't know what's happening to the economy.

Especially when considering its first monetary policy statement of 2023. Swinging 0.75% boosts its official cast rate, so why was the economy contracting?

Implementing monetary policy and controlling the session economy has earned the Reserve Bank of New Zealand more attention. New Zealand's economy had to go down, and market expectations also fell. However, Central Bank will improve the value of the interest rate.