WELLINGTON, Nov 23 Reuters New Zealand39;s central bank on Wednesday hiked interest rates by a record amount and warned the economy might have to spend an entire year in recession to bring skyhigh inflation under control.

The Reserve Bank of New Zealand RBNZ raised the official cash rate OCR by 75 basis points to 4.25 and crucially now sees rates peaking at 5.5, compared with a previous forecast of 4.1.

The central bank39;s overtly hawkish tone caught some traders offguard, lifting the local dollar and sending swap rates higher, while its predictions of a recession also surprised.

The RBNZ projects the economy will start contracting in the second quarter of 2023 and continue declining until the firstquarter of 2024.

Inflation is no one39;s friend and in order to rid the country of inflation we need to reduce spending levels, RBNZ Governor Adrian Orr told a press conference. That means that we will have a period of negative GDP growth.

Minutes from the meeting showed the RBNZ had even considered a full percentage point hike.

Markets were quick to price in a change in rate expectations.

Key twoyear swap rates surge 27 basis points at 5.26. The market is now pricing in a cash rate peak of 5.54.

The kiwi dollar climbed 0.4 to trade at 0.6164.

39;CLEAR URGENCY39;

The RBNZ39;s ninth straight hike means the cash rate has now risen 400 basis points since October 2021 and is the most aggressive policy tightening since 1999 when the cash rate was introduced. It is now…