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

 


RBNZ Observer Update: Expected to hike rates next week

RBNZ Observer Update: Expected to hike rates next week

New Zealand’s economy continues to pick up strongly, supported by post-earthquake reconstruction, elevated export prices and rising household spending
With demand booming and the economy already operating at capacity, the RBNZ should raise interest rates to keep inflation contained
We expect the RBNZ to be the first developed world central bank to lift rates in this cycle, raising the cash rate by 25 basis points to 2.75% next week

Interest rates should start to head towards neutral

New Zealand’s economy is at the beginning of a boom and interest rates should be increased from their current low levels to keep inflation contained. We expect the hiking phase to begin next week, with the RBNZ likely to raise rates by 25 basis points to 2.75%. This would make the RBNZ the first developed world central bank to lift rates in this cycle.

The three key drivers of growth remain in place, supporting strong growth in New Zealand.

First, post-earthquake construction continues to ramp up and is expected to support growth for a number of years. Second, New Zealand’s export prices remain at high levels, as strong demand from China provides a substantial boost. Third, household spending has picked up, supported by the run-up in housing prices over the past year or so and low interest rates. Despite a cooling in the housing market in recent months, the fundamental factors underpinning housing also remain in place, with strong migration inflows continuing against a backdrop of weak supply. Consumer confidence is at the highest level since 2007, suggesting spending will likely pick up further in coming months.

These factors are set to persist for some time and underpin further strong growth in an economy that is already operating at capacity. Business surveys imply annual GDP growth in excess of 4.0%, a rate that is well above the economy’s estimated potential growth rate of around 2.5%. Cost pressures are expected to build.

As a result, the RBNZ should start to normalise interest rate settings if it is to achieve its inflation goals. We expect the RBNZ to hike rates by 100 basis points through 2014 as it seeks to manage New Zealand’s boom.

Click here for the full report.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Fast Track: TPP Negotiations Set To Accelerate, Groser Says

Negotiations for the Trans-Pacific Partnership will accelerate in July, with New Zealand officials working to stitch up a deal by the month's end, according to Trade Minister Tim Groser. More>>

ALSO:

Floods: Initial Assessment Of Economic Impact

Authorities around the region have compiled an initial impact assessment for the Ministry of Civil Defence, putting the estimated cost of flood recovery at around $120 million... this early estimate includes social, built, and economic costs to business, but doesn’t include costs to the rural sector. More>>

ALSO:

Food: Govt Obesity Plan - No Tax Or Legislation

Speaking to Q+A’s Corin Dann this morning, health minister Jonathan Coleman said tackling obesity was at the top of the Government’s priority list, but there was “no evidence” a sugar tax worked, and further regulation was unnecessary. More>>

ALSO:

Treasury Docs On LVR Policy: Government Inaction Leads To Blurring Of Roles

The Treasury wouldn’t have had to warn the Reserve Bank to stick to its core functions if the Government had taken prompt and substantial measures to rein in skyrocketing Auckland house prices, Labour’s Finance spokesperson Grant Robertson says. More>>

ALSO:

Final EPA Decision: Tough Bar Set For Ruataniwha Dam

Today’s final decision by the Tukituki Catchment Board of Inquiry is good news for the river and the environment, says Labour’s Water spokesperson Meka Whaitiri. “Setting a strict level of dissolved nitrogen in the catchment’s waters will ensure that the dam has far less of an impact on the Tukituki river." More>>

ALSO:

"Don’t Give Up":
End Of Kick-Start Hits KiwiSaver Enrolments

ANZ said new enrolments for the ANZ KiwiSaver Scheme had dropped by more than 50% since the Government announced an immediate end to the $1,000 KiwiSaver kick-start incentive in the Budget last month. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news