FYI | Apr 26 2007
By Chris Shaw
It may have been an even money chance in the view of the market but the Reserve Bank of New Zealand (RBNZ) has today increased official interest rates again, pushing through a 0.25% increase that sees the official rate at 7.75%.
Chief economist at the Commonwealth Bank, Nick Tuffley, suggests the move is primarily aimed at consolidating the recent increases in mortgage rates, especially as domestic inflationary pressures remain strong given a tight labour market and a strong housing sector.
He views the increase as a response to the recent strength in domestic demand, even as the RBNZ has acknowledged a stronger currency stemming from higher rates may put further pressure on the export sector. At least this pressure is being offset to some extent by stronger commodity prices, reducing the pressure coming from a higher Kiwi dollar.
TD Securities global strategist Stephen Koukuolas suggests the RBNZ is hopeful the move will dampen import demand for consumption goods, though he too points out the potential of further currency strength from the higher rates means capital goods imports are likely to remain weak.
In Commonwealth Bank’s view the RBNZ will now leave rates on hold for the balance of the year, as it will want to assess the impact of this latest rise. It sees only a 20% chance of a further hike in 2007 even though inflation risk is likely to remain to the upside, while it is forecasting rates will start to come down sometime in 2008.
TD Securities agrees, pointing out the lack of any mention of further tightening potentially being required is an indicator this is the peak of the rate cycle in New Zealand.