Bagrie: Hikes will be effective
The OCR was left on hold this morning but the announcement came with a warning that interest rate rises will begin soon and some economists are revising up their predictions.
Thursday, January 30th 2014, 10:18AM
by Susan Edmunds
Governor Graeme Wheeler left the rate at 2.5%.
But he said the country's economic expansion had significant momentum, commodity prices were high, confidence was strong and construction activity had been lifted by work in Christchurch and Auckland.
Economists had said there was a chance that Wheeler would raise the rate today but that it was likely he would choose to wait until March, when there will be more opportunity to explain the decision.
ANZ’s Cameron Bagrie had been expecting a 25 basis point hike today but said he was not surprised by the announcement. “It was always a moot point whether he’d go in January or March. He’s made it clear that he’s going in March so the 2.5% OCR is on borrowed time.”
Bagrie said he expected three hikes of 25 basis points from March, followed by a six-month break.
How aggressive the interest rate cycle was would depend on how the global economy was tracking, he said.
Wheeler had pointed potential risks such as the possible impact of tapering tantrums on emerging economies. “He’s flagging a stronger economy but there are a few challenges. I think they’re going to get a lot of bang for their buck when they get to the 25 basis point increases.”
Gareth Kiernan, of Infometrics, said he was surprised by how hawkish the statement was. Compared to December, there was much more focus on strength and momentum in the economy and the potential for inflation. “We will be revising up our outlook for interest rates this year.”
Kiernan said he still expected a 25bps move in March but labour market data could push that to a 50bps rise.
Westpac’s economists said today’s announcement was what they expected but the announcement seemed to indicate the Reserve Bank is considering a more aggressive hiking cycle than it signalled in the December monetary policy statement. “Extremely bullish words were chosen to describe the current state of and outlook for economic activity in New Zealand. The RBNZ sounded significantly more concerned about inflation pressure.”
| « What the RBNZ said | OCR: What the economists said » |
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