Hold the hikes NZIER says
The New Zealand Institute of Economic Research sees slow economic growth for the next couple of years and expects the Reserve Bank to keep interest rates low until June next year.
Wednesday, August 31st 2011, 9:38PM
This view is in marked contrast to what other economists are thinking. The most recent mortgagerates.co.nz survey of economists shows the majority thing the next OCR will be 50 basis point in December.
NZIER says future interest rate increases should be delivered “cautiously” with most mortgages on short-term or floating rates, and every 1 percentage point increase will add an extra $1.4 billion to the mortgage bill.
The vulnerabilities in the global economy and the strong New Zealand dollar mean the Reserve Bank will probably keep the official cash rate at a record-low 2.5% until June next year, according to the NZIER’s quarterly predictions.
“The New Zealand economy is on the mend, but weak global growth is threatening the recovery,” principal economist Shamubeel Eaqub said. “An abrupt slowdown in the Australian economy, renewed recession fears in the US, and a spreading sovereign debt crisis in Europe will soften global growth.”
The NZIER expects economic growth of just 1.4% this calendar year, and 2.6% in 2012 as households keep repaying debt and refrain from spending too much. That’s softer than the Reserve Bank’s June forecasts for the same period, which were picking growth of 2.8% and 4.7% respectively.
The Treasury was picking 4.7% growth for the 12 months through March 2012 and 6.4% expansion the following year in its budget forecasts.
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