The remark comes a day after the central bank raised the official exchange rate (OCR) by 75 basis points, to 4.25 percent.
In its monetary policy statement (pdf), the RBNZ revealed that the economy is expected to enter recession in 2023.
“This economic downturn will be partly the result of higher interest rates as the Reserve Bank works to lower inflation and restore employment to a more sustainable level,” he said.
Speaking to the Finance and Expenditure Committee, Orr said that actual and expected inflation is too high and must be brought down.
“The Committee agreed that OCR needs to reach a higher level, and sooner than previously indicated, to ensure that inflation returns to its target range over the medium term,” he said in his opening statement.
“Core consumer price inflation is very high, employment is above its sustainable maximum, and near-term inflation expectations are up.”
Asked that the RBNZ was deliberately planning a recession to combat the current period of high inflation, Orr admitted that.
“I think that’s right,” he said. We are deliberately trying to slow down the total spending in the economy. The faster inflation expectations go down the less work we need to do and the less likely we are to have a prolonged period of low or negative growth.”
What is the New Zealand recession expected to look like?
Orr warned that New Zealanders should prepare for a “very shallow and short” period of negative GDP growth.
“What we’re looking at is a one percent deceleration of GDP over three to four quarters in the second half of next year through 2024. That’s one percent,” he said.
The governor also offered an apology to the families for the difficulties they are facing in the current economic environment.
“On behalf of the MPC, we regret that New Zealanders are exposed to major shocks and that inflation is above target. As we have said before, inflation is no one’s friend and it is causing economic costs.
The RBNZ originally predicted that inflation would start to decline during the September quarter. However, the numbers revealed it was still stubbornly high at a record 30-year high of 7.2 percent.
This prompted the central bank to intensify the current aggressive tightening cycle.
Senior economists at both ANZ and ASB banks expect another 75 basis point increase for the next decision in February, followed by a 50 basis point increase in May.