Rising interest rates widely predicted

The Reserve Bank is set to deliver a 25 basis point hike in the cash rate on Wednesday, according to the Kiwibank economics team.

Monday, February 21st 2022, 5:47PM

by Eric Frykberg

They say the OCR will rise to 1% as the central bank enters phase two of its tightening cycle.

Subsequent rises will push the rate to 2.50% during this year.

The economists attribute this movement to an “unbelievably tight” labour market accelerating wages, and inflation sitting at 5.9%, almost double its supposed upper limit.

Imported inflation is making things worse, with supply-chain disruption exacerbated by a weaker currency.

Kiwibank adds the market knows all this already, having pushed up retail rates to customers, and there are some signs that a 50 basis point rise is possible, though Kiwibank thinks it is unlikely.

ASB is also predicting a 25 point rise on Wednesday. It cites similar international and domestic worries as its rivals and its senior economist Mike Jones coins a colourful phrase: “Nightmare on Bond St”.

Unlike Kiwibank, ASB thinks the RBNZ will not stop at 2.5%, but push on to 2.75% before pausing to catch breath.

This would make the current monetary tightening process the most severe since the years 1999 to 2000. Like Kiwibank, ASB raises the possibility of a 50 point jump in the base rate but then concludes it it unlikely.

Westpac shares the worries of the other bank economists and also raises the possibility of a 50 point rise, before concluding that a 25 point rise on Wednesday would do the trick. But its endpoint is higher, at 3%.

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