Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


The RBNZ Observer: A rate hike expected

The RBNZ Observer: A rate hike expected

New Zealand’s economy is beginning to boom, boosted by the post-earthquake rebuild in Canterbury and strong housing and dairy prices
- Growth and inflation are running ahead of the RBNZ’s previous expectations, which we think will trump concerns over the high level of the NZD

- While finely balanced, we expect the RBNZ is likely to raise the cash rate by 25bps at next week’s meeting, in order to keep ahead of the game on inflation

A close call, but RBNZ expected to raise rates

New Zealand’s economy is beginning to boom. Post-earthquake reconstruction, solid house price growth, a rapid run up in export prices and very accommodative policy are providing a significant boost to growth. After registering quarterly GDP growth of +1.4% q-o-q in Q3 (an annualised rate of +5.7%), recent business surveys have suggested that the economy is likely to have expanded at a similar pace in Q4.

With these drivers in place, the RBNZ had already signalled, in its last official statement (12 December) that rate hikes would be needed by April this year. Since that statement, both inflation and growth have surprised the RBNZ on the upside and forward indicators also suggest that there is more momentum than the central bank was forecasting.

The challenge for the central bank is that the NZD still remains high and has also risen since then. But, in our view, the stronger economy and higher inflation are likely to trump concerns over the elevated exchange rate. The economy is already operating at capacity, demand is booming and inflation is ahead of expectations. Interest rates need to rise soon if the central bank is to meet its inflation goals.

We see the RBNZ as likely to hike by 25bp next week.

The decision is, however, still a close call, with the main risk being that they wait until March to move. This would allow the rate hike to be accompanied by their official statement and give them the opportunity to present a full set of projections, rather than the one-page summary that will accompany next week’s announcement. But, on balance, we think this is unlikely to hold them back, given that the RBNZ’s medium-term outlook is still intact and the Governor is already scheduled to give a public address the day after the decision. We expect them to ring in the New Year with a rate hike.


© Scoop Media

Business Headlines | Sci-Tech Headlines


DIY: Kiwi Ingenuity And Masking Tape Saves Chick

Kiwi ingenuity and masking tape has saved a Kiwi chick after its egg was badly damaged endangering the chick's life. The egg was delivered to Kiwi Encounter at Rainbow Springs in Rotorua 14 days ago by a DOC worker with a large hole in its shell and against all odds has just successfully hatched. More>>


Trade: Key To Lead Mission To India; ASEAN FTA Review Announced

Prime Minister John Key will lead a trade delegation to India next week, saying the pursuit of a free trade agreement with the protectionist giant is "the primary reason we're going" but playing down the likelihood of early progress. More>>



MYOB: Digital Signatures Go Live

From today, Inland Revenue will begin accepting “digital signatures”, saving businesses and their accountants a huge amount of administration time and further reducing the need for pen and paper in the workplace. More>>

Oil Searches: Norway's Statoil Quits Reinga Basin

Statoil, the Norwegian state-owned oil company, has given up oil and gas exploration in Northland's Reinga Basin, saying the probably of a find was 'too low'. More>>


Modern Living: Auckland Development Blowouts Reminiscent Of Run Up To GFC

The collapse of property developments in Auckland is "almost groundhog day" to the run-up of the global financial crisis in 2007/2008 as banks refuse to fund projects due to blowouts in construction and labour costs, says John Kensington, the author of KPMG's Financial Institutions Performance Survey. More>>


Health: New Zealand's First ‘No Sugary Drinks’ Logo Unveiled

New Zealand’s first “no sugary drinks logo” has been unveiled at an event in Wellington... It will empower communities around New Zealand to lift their health and wellbeing and send a clear message about the damage caused by too much sugar in our diets. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news