RBNZ signals rates hikes coming

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Reserve Bank governor Alan Bollard left interest rates on hold but gave strong signals that increases are coming soon.

Thursday, July 28th 2011, 9:14AM 5 Comments

In his OCR statement today  he said:  "Provided current global financial risks recede and the economy continues to recover, the bank sees little need for the March 2011 "insurance" cut to remain in place much longer."

In March the bank made an emergency cut of 50 basis points in response to the Canterbury earth quakes and described the move as "insurance" against a possible collapse in confidence.

The OCR has today been left at its record low of 2.50%.

Economists surveyed by www.goodreturns.co.nz before today's announcements were already starting to factor in OCR increases earlier than their previous forecasts of the first half of 2012.

in his brief four paragraph statement today Bollard said the economy had grown more strongly than expected and the recovery appeared to be getting back on track.

"The economy has grown more strongly than was expected, and it appears that the recovery is getting back on track, supported by a strong terms of trade.

"At the same time, however, current fragility in global financial markets, including the uncertainty around the US Government's debt ceiling, continues to highlight the downside risk to trading partner activity noted in the June statement," Bollard said.

"Annual headline CPI inflation continues to be above the bank's 1-3% target bank. However, much of the current spike in inflation has been driven by the October 2010 increase in the rate of GST, and will therefore be temporary.

"Wage and price setters should focus on underlying inflation, which is currently estimated to be below 2.5%.

"Provided current global financial risks recede and the economy continues to recover, the Bank sees little need for the March 2011 ‘insurance' cut to remain in place much longer."

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