Interest rate hike expectations grow

The recent surge in economic growth has increased the odds of an official cash rate hike in February, according to Kiwibank economists.

Monday, June 21st 2021, 12:57PM

Figures released last week revealed a 1.6% increase in GDP growth in the first quarter, and the surprise numbers have prompted the Kiwibank team to reassess their predictions.

The forecasters have stuck with their prediction that the OCR will begin to rise in May, but say "there’s growing risk of an even earlier move in February".

"Expectations of OCR hikes are shifting toward an earlier lift-off than the RBNZ had signalled in the May MPS," the bank said.

The team, led by Jarrod Kerr, said wholesale markets were not reflecting the increasing risk of rate hikes.

"From our viewpoint, all wholesale interest rates look too low. And the kiwi currency looks very low. We expect to see a strong lift in both interest rate expectations, and the kiwi dollar from here."

Kiwibank's comments follow ANZ's revision of its interest rate forecasts last week. The bank tips rates to rise in February if the economy maintains its current trajectory. 

Most economists now believe the central bank rate has troughed in this cycle.

The Reserve Bank's own forecasts appear to back this up. Its latest OCR track projects the OCR could rise from mid-2022, with gradual rises to 1.75% in 2024.

The RBNZ's projection is conditional and could change with economic circumstances.

Tags: GDP interest rates Kiwibank OCR forecasts

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