The Reserve Bank’s hike is the first of what economists expect will be a series of increases as it tries to bring inflation back within its target range of 1-3%.
But Hickey argues that much of the current inflation pressure is coming from overseas energy prices and unavoidable household costs such as rates and insurance – expenses that higher interest rates cannot directly control.
“It’s always been a blunt instrument, but it’s extra blunt right now,” he says.
“Those monopolies and duopolies and the Iranian Revolutionary Guard do not care what the Reserve Bank is doing. They’re going to do their thing.”
Instead, he says the people most exposed to higher rates – including mortgage holders, struggling businesses and workers trying to enter the labour market – will take the hit.
Hickey points to an overall unemployment rate of 5.3%, youth unemployment of 14.4%, and unemployment among women aged 20 to 24 of 20%.
“Can you really be putting up interest rates when young people have an unemployment rate at a 30-year high of 14.4%? It doesn’t feel right.”
He warns the consequences for young people can last well beyond the current economic cycle.
“They talk about the scarring of a workforce, where if you didn’t get a good job in your early 20s, often that means you never really get a good job right through.”
While the Reserve Bank considers the OCR below 3% to still be stimulating the economy, Hickey believes it should have kept its foot on the accelerator longer.
“I certainly don’t mind the odd squeal of the rubber on the tyres, because there are real people who are not in work because of this.”
For mortgage borrowers, the immediate effect may be muted because most New Zealanders are on fixed rates, but Hickey says the hike signals the era of falling borrowing costs is likely over, and another one or two increases could follow before the end of the year.
Watch or listen to the full episode of The Prosperity Project for more.
The Prosperity Project is hosted by Nadine Higgins, an experienced broadcaster and financial adviser.
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