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

 


UPDATED: Wheeler keeps OCR at 2.5%, hiking to start soon

UPDATED: Wheeler keeps OCR at 2.5%, expects to start hiking rates ‘soon’

(Adds economist comment, updates market reaction)

By Paul McBeth and Tina Morrison

Jan. 30 (BusinessDesk) - Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.5 percent, while saying the rate will have to rise soon as inflationary pressures escalate in an economy with “considerable momentum”.

“The bank remains committed to increasing the OCR as needed to keep future inflation near the 2 percent target mid-point,” Wheeler said in a statement. “In this environment, there is a need to return interest rates to more-normal levels. The bank expects to start this adjustment soon.”

The Reserve Bank last month signalled interest rates would start rising in 2014, and stronger inflation data since then fuelled market expectations Wheeler might have raised the benchmark rate as early as today. Economists were more circumspect with most picking a March hike, saying a later move would let Wheeler explain his decision in the full monetary policy statement, press briefing, select committee hearing and updated forecasts.

“It’s a very strong likelihood that we will see an interest rate increase in March,” said Nick Tuffley, chief economist at ASB Bank. “It is going to keep underpinning the New Zealand dollar.”

While a strong New Zealand dollar was keeping a lid on tradable inflation, “the bank does not believe the current level of the exchange rate is sustainable in the long-run,” Wheeler said today. Following the decision not to change rates, the New Zealand dollar dropped as low as 81.70 US cents, from 82.65 cents immediately before the 9am announcement. It was recently trading at 82.03 cents.

Wheeler said inflationary pressures are likely to increase in the next two years, and figures this month showed consumer prices rose at an annual 1.6 percent pace in the December quarter, slightly ahead of expectations.

In its December forecast track for the 90-day bank bill rate, seen as a proxy for the OCR, the Reserve Bank projected the rate would increase to 2.7 percent in the March quarter of 2014, rising to 3.8 percent by the end of the year, and 4.8 percent by March 2016.

Wheeler said the scale and speed of increases in the OCR would “depend on future economic indicators.”

The country’s “economic expansion has considerable momentum” with annual growth this year expected to continue near a 3.5 percent pace as global demand for New Zealand’s exports fuel high prices, he said.

“While agricultural export prices are expected to come off their peak levels, overall export demand should benefit from improving growth in the global economy,” Wheeler said.

Upbeat consumer and business confidence, rising inward migration, and the Canterbury rebuild and construction in Auckland’s housing market are adding to New Zealand’s growth prospects.

ASB’s Tuffley expects the Reserve Bank to hike rates by 25 basis points in March, June and December of this year and again in March, September and December of 2015, peaking at 4 percent in late 2015.

“We are likely to see the New Zealand dollar remaining pretty firm tracking through those first rate increases,” Tuffley said.

Wheeler was reluctant to lift rates last year to tame booming property markets in Auckland and Christchurch for fear of driving up an already elevated dollar, instead introducing restrictions on low-equity home loans to take riskier demand out of the property market.

Money printing programmes by central banks including the US Federal Reserve, Bank of England, and Bank of Japan has underpinned strength in the kiwi dollar, as the monetary stimulus debased those major currencies.

The Fed today trimmed a further US$10 billion from its monthly asset purchase programme to US$65 billion, while keeping the key rate near zero percent, as the world’s biggest economy continues to recover.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

BusinessDesk: APN's NZME Sees Future In Paywalls, Growth In Digital Sales

APN News & Media has touted a single newsroom concept for its NZME unit in New Zealand, similar to what Germany's Die Welt uses, saying an 'integrated sales proposition' is helping it win market share, including ... More>>

Labour Party: Global Milk Prices Now Lowest In 6 Years

The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices ... More>>

BusinessDesk: NZ Inflation Expectations Creep Higher In June Survey

May 19 (BusinessDesk) - New Zealand businesses lifted their expectations for inflation over the next two years, sapping any immediate pressure on the Reserve Bank to cut interest rates, and prompting the kiwi dollar to jump higher. More>>

BusinessDesk: Lower Fuel Costs Drive Down NZ Producer Input, Output Prices

May 19 - Producer input and output prices fell in the first quarter, mainly reflecting lower fuel costs and weakness in prices of meat and dairy products. More>>

Media: Fairfax Media NZ Announces Senior Editorial Team

Fairfax Media New Zealand has today confirmed its new editorial leadership team, as part of a transformation of its newsrooms aimed at enhancing local and national journalism across digital and print. More>>

Science: Flavonoids Reduce Cold And Cough Risk

Flavonoids reduce cold and cough risk Research from the University of Auckland shows eating flavonoids – found in green tea, apples, blueberries, cocoa, red wine and onions – can significantly reduce the risk of catching colds and coughs. The research, ... More>>


BusinessDesk: RBNZ House Alert Speech The Catalyst For Government Action

Prime Minister John Key all but conceded that pressure from the Reserve Bank of New Zealand for concerted action on rampant Auckland house prices was one of the main catalysts for the government's weekend announcements about tightly ... More>>

BusinessDesk: How To Fall Foul Of The New Housing Tax Rules: Tips From IRD

Just because you rented out your investment property doesn't absolve you from paying tax, says the Inland Revenue Department in a summary of commonly made mistakes by non-professional property investors when it comes to their tax liability.More>>

Legal: Superdiversity Law, Policy And Business Stocktake Announced

Mai Chen, Managing Partner at Chen Palmer New Zealand Public and Employment Law Specialists and Adjunct Professor of Law at the University of Auckland, today announced the establishment ... More>>

Housing: More House Price Gains Expected

House price expectations remain high, with a net 56% of respondents expecting house prices will increase. Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year. Affordability and a lack of houses for ... More>>

TDDA: State-Of-The-Art Drug Testing Laboratory To Open In Auckland

World leading drug testing agencies, The Drug Detection Agency (TDDA) and Omega Laboratories, open New Zealand laboratory More>>

Network: Bigpipe Launches Ultra-Fast Broadband Into Wellington

Bigpipe Launches Ultra-Fast Broadband into Wellington Naked broadband provider Bigpipe has extended its national reach, announcing today, the launch of its unlimited UFB offering into Wellington. The Spark Venture business is giving Wellingtonians the ... More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news