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

 

Gongs Got: Canon Media Awards & NZ Radio Awards Happen

Radio NZ: RNZ website The Wireless, which is co-funded by NZ On Air, was named best website, while Toby Manhire and Toby Morris won the best opinion general writing section for their weekly column on rnz.co.nz and Tess McClure won the best junior feature writer section. More>>

ALSO:

Pre-Budget: Debt Focus Risks Losing Opportunity To Stoke Economy

The Treasury is likely to upgrade its forecasts for economic growth in Budget 2016 next week but Finance Minister Bill English has already signalled that more of his focus is on debt repayment than on fiscal stimulus or tax cuts... More>>

ALSO:

Fulton Hogan's Heroes: Managing Director Nick Miller Resigns

Fulton Hogan managing director Nick Miller will leave the privately owned construction company after seven years in charge. The Dunedin-based company has kicked off a search for a replacement, and Miller will stay on at the helm until March next year, or until a successor has been appointed and a transition period completed. More>>

ALSO:

Gordon Campbell: On Electricity, Executions, And Bob Dylan

The Electricity Authority has unveiled the final version of its pricing plan for electricity transmission. This will change the way transmission prices (which comprise about 10% of the average power bill) are computed, and will add hundreds of dollars a year to power bills for many ordinary consumers. More>>

ALSO:

Half Empty: Fonterra NZ, Australia Milk Collection Drops In Season

Fonterra Cooperative Group says milk collection is down in New Zealand and Australia, its two largest markets, in the first 11 months of the season during a period of weak dairy prices. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news