Wheeler should move rate now: Economist

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New Zealand house prices are increasing at such a pace that the Reserve Bank should act now, says TD Securities economist Annette Beacher.

Friday, March 22nd 2013, 6:00AM 2 Comments

She said once annual house price inflation crossed the double-digit percentage mark, as it has done around much of the country, Governor Graeme Wheeler should do something about it.

The Reserve Bank is considering the use of macroprudential tools to slow house price inflation, such as loan-to-value restrictions or requiring banks to hold more capital against lending.

Beacher said households were locking in cheap fixed mortgage rates. “So by the time Wheeler finally hikes [the official cash rate] he’s going to have a lot of heavy lifting to do.”

Both she and Paul Bloxham of HSBC expect the Reserve Bank to raise the official cash rate in December, despite Wheeler’s announcement that rates would not move this year. Beacher predicts a rate of 4% in December next year.

Infometrics managing director Gareth Kiernan expects mortgage rates to start moving at the end of this year, ahead of an official cash rate hike in March 2014.

JP Morgan’s Tom Kennedy appears to expect Wheeler to make a dramatic turnaround before his next official cash rate announcement. Kennedy expects the rate to lift to 2.75% in June, and 3% in September.

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