FYI | Apr 23 2007
By Chris Shaw
The market is factoring in a further hike in official interest rates by the Reserve Bank of New Zealand (RBNZ) when it meets later this week, but TD Securities global strategist Stephen Koukoulas sees reasons why this won’t occur.
Koukoulas suggests the recent strength in the Kiwi currency and the accompanying rise in fixed mortgage rates is together having the same impact as a further increase in official rates, meaning the RBNZ is in a position of being able to wait and see in terms of future economic data before it needs to take further official action.
Supporting such an approach, he points out inflation is not too great a concern, having stayed within the bank’s target range for some months and looking likely to continue this path for some time in the future.
If the bank stays put Koukoulas suggests the New Zealand dollar could weaken from current record levels, as on his estimates it is currently massively overvalued. Given the market is factoring in another rate rise, a decision to leave rates unchanged could prompt some selling in the currency.
With a history of using strength in the currency as a reason for not lifting interest rates Koukoulas therefore sees the RBNZ as following the same approach this week, irrespective of the market expecting it to act differently.