FYI | Mar 08 2007
By Chris Shaw
In a not unexpected move the Reserve Bank of New Zealand (RBNZ) has lifted official interest rates a further 0.25%, putting the overnight call rate at 7.5%.
Both Macquarie and Stephen Koukoulas at TD Securities had expected the move, as the central bank continues to deal with strength in the housing sector and the resultant inflationary pressures this is creating.
Keeping the pressure on the housing sector is a tight labour market, which implies some upward pressure on wages. Koukoulas points out this has encouraged the RBNZ to do some jawboning with the announcement in an attempt to convince the market the risk to rates remains on the upside.
He expects this will have little impact though, as the market appears to have taken the comments as less hawkish than expected, a view he shares. He sees Kiwi rates as now on hold, which implies the New Zealand dollar could come under some pressure as long positions put in place before the rate hike are unwound.
Macquarie disagrees about the NZ dollar outlook, suggesting it should remain supported thanks to interest rate differentials. It does agree this is likely to be the last increase in official rates, though the broker notes the RBNZ is considering additional measures to slow the housing sector.
While Koukoulas also sees the possibility of some non-monetary measure to supplement official policy, much of this depends on the inflation outlook, which is expected to remain in the middle of the bank’s target band in the short-term at least.