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Odds on earlier interest rate hike shorten

The odds that Reserve Bank governor Alan Bollard will start hiking interest rates asooner than later have just shortened.

Tuesday, May 24th 2011, 9:36PM 1 Comment

by Jenny Ruth

The central bank's latest survey showed a sharp jump in two year ahead inflation expectations from 2.6% three months ago to 3%, even as businesses wound down their expectations of how fast the economy will grow.

They now expect the economy to grow 2.1% over the next year, down from the 2.5% annual growth they were expecting three months ago.

The survey results were sufficient to push wholesale interest rates up about five basis points across the board - for example, the two-year swap rate, from which two-year fixed mortgages are set, rose five basis points to 3.32%.

"These are fundamental signals to us that people expect inflation to be running on the high side," says Craig Ebert at Bank of New Zealand, which is expecting Bollard will next raise his official cash rate (OCR) in December. The OCR is currently at 2.5%, its record low.

Given that the economy is emerging from recession and the currency is very high, inflation should be minimal but it isn't, Ebert says. "What worries us is if this is where we're starting from, it can only get worse."

Nick Tuffley, chief economist at ASB Bank, says the jump in two-year expectations "is a reasonably significant move" and means Bollard can't afford to be complacent.

In the past, when the survey showed expectations getting this high, "the Reserve Bank has been a bit twitchy about it."

Tuffley still doesn't think Bollard will raise the OCR until March next year. Bollard will want to be sure the economic recovery is well underway and won't want a repeat of last year when hindsight showed he raised the OCR too soon, he says.

Darren Gibbs at Deutsche Bank says he doesn't think this survey on its own will be sufficient to prompt Bollard to make a material change in his stance.

"At most, we think that it will encourage the bank to remind all and sundry that its ability to support the recovery will depend on wage and price setters acting in a way that is consistent with the bank's medium term inflation target." Bollard's inflation target is between zero and 3% over the medium term.

« ANZ grows mortgage book after sluggish quarters BNZ grows mortgage book strongly in March Qtr but profitability falls »

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Comments from our readers

On 25 May 2011 at 1:46 pm Terry Raggett said:
People and commentators can expect whatever they like. This thing ain't goin' nowhere. The market (local) is going to bounce along the bottom for at least five years.
With property values still way overpriced by at least 10% and affordability off the scale it just is not going to fly but rather bounce along the run-way. Kiwis' love affair with property will perpetuate and our markets are absolutly tied to kiwi sentiment, that's just the way it is folks.
Commenting is closed

 

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 4.05 4.49
ANZ Special - 3.55 3.55 3.99
ASB Bank 5.20 3.89 4.05 4.39
ASB Bank Special - 3.39 3.55 3.89
BNZ - Classic - 3.49 3.55 3.89
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 ▼4.65 ▼4.80 -
HSBC Premier 5.24 3.54 3.54 3.69
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 3.97 4.05 4.39
Kiwibank ▼5.15 4.20 4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 ▼4.45 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.39 ▲3.55 3.89
Sovereign 5.30 3.89 4.05 4.39
Sovereign Special - 3.39 3.55 3.89
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.19 4.35 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.39 3.55 3.89
Wairarapa Building Society ▼5.50 ▼3.95 ▼4.05 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.39 3.55 3.99
Median 5.34 3.97 4.05 4.39

Last updated: 24 January 2020 8:55am

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