Confidence may prompt OCR hike
Growing business confidence could easily translate into inflation pressure and force the Reserve Bank to move on interest rates much sooner than predicted, commentators say.
Thursday, December 19th 2013, 4:52PM
by Susan Edmunds
Business confidence hit a near 15-year high this month, according to the ANZ Business Outlook Survey.
A net 64.1% of businesses felt optimistic about general business conditions and 53.5% are seeing an improvement in their own firm, a level not seen in 19 years.
ANZ chief economist Cameron Bagrie said that in itself would not be enough to force the Reserve Bank’s hand.
But he said all it would take would be for those numbers to translate into inflation. “At the moment an increase has been flagged for early 2014. But if we start to see the inflation profile move aggressively it will be very much early 2014.”
He said he was still expecting a March increase but wasn’t ruling out an increase in January.
BNZ’s economists pointed out that there was a lot of potential inflation pressure looming in the construction sector.
“It would appear that the only thing standing in the way of progress in this sector over the next year or so will be capacity constraints in their various guises.”
They agreed with Bagrie that a March move was likely.
“It remains our view that the momentum in the economy is such that this should have been done already but bygones are bygones and the RBNZ has all but ruled out January so March it is. What we have said before, and will say again, however, is that the hiking cycle could well prove more dramatic than many expect and we feel very comfortable with our view that the cash rate will be 75 basis points higher by June 2014. “
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