Rates may not rise as quickly as expected: Economists

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Interest rates may not rise as sharply this year as earlier expected, economists say.

Friday, June 6th 2014, 3:27PM 3 Comments

All but one of the economists surveyed by mortgagerates.co.nz this week expect the official cash rate to be lifted by 25 basis points next week.   But many expected only two more increases throughout the rest of the year.

Tom Kennedy, of JP Morgan, said he thought it was a 50/50 call whether the rate was increased in June or July. But, he said, given the data that has come out recently, it looked more likely that the Reserve Bank would wait until July to increase the rate to 3.25%.

“Our overarching view for a while has been that they can take the opportunity to issue a lower inflation growth forecast going forward and it would look a bit funny if they raised rates with that background.”

BNZ agreed there were increasing risks that the interest rate hiking would not be as aggressive as the Reserve Bank previously signalled, because of the dollar being higher than anticipated.  “Lower current inflation adds to this risk. We will be most interested in any discussion around the NZ dollar or commodity price interface and its implications for the OCR outlook ahead.”

BNZ expected another rise in July but then for the rate to remain on hold in September.

Deutsche Bank agreed a short pause might be coming: “We expect the Reserve Bank will leave investors with the impression that conditional on inflation pressures evolving as expected, a short pause in the tightening cycle may soon be appropriate.”

ASB expects the rate to be lifted 25 basis points,  then left alone until late in the year. 

Robin Clements, of UBS agreed the rate would go up 25 basis points this month but said he expected the accompanying announcement to be more hawkish than the market expected, with a focus on the state of the economy and pressures expected to emerge.

HSBC said after the June hike, the rate would remain at 3.25% until December, when it would be hiked by another 25 bps.

“There are some very early signs that higher interest rates, combined with the central bank’s adjustments to its new macroprudential settings, are taking some of the heat out of the housing market. At the same time, dairy prices have fallen back a bit in the past couple of months, from near record high levels. But these are minor setbacks in the grand scheme. Business and consumer sentiment surveys suggest that growth is still running at a well above trend pace. More tightening is likely to be needed.”

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