RBNZ more hawkish than expected
As expected, Reserve Bank governor Alan Bollard left his Official Cash Rate (OCR) unchanged this morning at 5%, says that was still likely to keep inflation within the bank’s zero to 3% target range.
Thursday, October 23rd 2003, 10:50AM
by Jenny Ruth
In the wholesale interest rates market, the December 90-day bank bill futures are implying the physical bills will be at 5.29% by then while the March 90-day bank bill futures are suggesting the physical bills will have risen to 5.53% by then.
Anthony Byett, chief economist at ASB Bank, says he doesn’t think rates will rise that soon because he thinks the New Zealand dollar will continue to rise. From just over 60 US cents currently, he expects it will be between 64 and 65 US cents by early to mid next year, primarily because of US dollar weakness.
The problem for the Reserve Bank is that while the domestic economy, particularly the housing market is very buoyant, the high New Zealand dollar is hurting exporters. While he would like to raise rates to dampen the housing market, he doesn’t want to clobber the already suffering exporters.
"In my mind, we’re going to see the dicotomy we’ve got in the economy get even wider," Byett says.
Sean Comber, an economist at ANZ Bank, also thinks it’s unlikely rates will rise as early as Bollard’s statement implies.
"We suspect that it won’t be until about June next year that the bank has sufficient confidence that the external sector’s recovering," he says. By then, the domestic economy shouldn’t be such a problem either, he says.
"The housing market has potentially got another year or so to go with the pressures coming through from migration and the shortage of dwelling stock, but there are signs coming through already that migration is starting to ease," he says.
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