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Bollard turns more hawkish on next rate hike

Reserve Bank governor Alan Bollard surprised financial markets by taking a slightly more hawkish stance on when interest rates need to rise again, bringing him more in line with what most economists are thinking.

Thursday, December 10th 2009, 9:43AM 1 Comment

by Jenny Ruth

Bollard left his official cash rate (OCR) unchanged at 2.5% but now says his first rate hike may come "around the middle of 2010" rather than in the second half of next year.

The New Zealand dollar jumped nearly a US cent to just below 72 US cents while the yield on the June bank bill futures rose about 15 basis points in reaction.

"They've shifted to a more hawkish stance," says David Plank, an economist at Deutsche Bank. "They've shifted their view quite a reasonable amount to something that's more sensible," he says.

"I, for one, was concerned they were ignoring some of the inflation risks."

Nick Tuffley, chief economist at ASB Bank, says most people are still expecting Bollard to raise the OCR somewhere between April and June and today's statement represents a gradual shift towards those expectations.

"We still think there's a risk that the Reserve Bank tightens a bit earlier than they're saying but the gap's starting to close up a little now," Tuffley says.

Brendan O'Donovan, chief economist at Westpac, says the Reserve Bank has raised its growth forecasts markedly and now expects 3.6% growth in the year ending March 2011, up from 3.1% previously, rising to 3.9% the following year, up from 3.4% previously.

The figures don't include the impact of the emissions trading scheme which will add about 0.4 percentage points to inflation and that would take 2011 inflation close to the top of Bollard's target range, O'Donovan says.

"There's clearly less and less need to keep the cash rate at extremely stimulatory levels," he says.

The central bank's "got a big fish on the line but they're trying to reel it in with a light tackle."

« FULL SPEECH: OCR remains unchanged at 2.5% Westpac records above average lending growth »

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Comments from our readers

On 15 December 2009 at 8:09 pm Babu said:
Irrespective of RBNZ keeping the cash rate at this level or by increasing gradually, the greddy banks are going to charge customers at a higher interest. The banks are borrowing about 30% of their lending through overseas banks. I wonder why RBNZ float some lending money through a secondary lender to keep check on interest rates which are charged by the major banks...
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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 7.99 7.49 7.35
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.39 6.89 6.75
ASB Bank 8.64 7.39 6.89 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - ▼7.29 ▼6.85 ▼6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.89 ▼7.45 ▼7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.15 - -
Co-operative Bank - Owner Occ 8.40 7.35 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.85 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

Last updated: 28 February 2024 11:55am

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