NZ dollar jumps as inflation stokes chance of early rate hike

Tuesday 21st January 2014

The New Zealand dollar rose 0.8 percent after faster than expected inflation fuelled expectations the Reserve Bank may have to hike interest rates as early as next week.

The kiwi rose as high as 83.28 US cents from 82.66 cents, and recently traded at 83.19, after government figures showed inflation rose 0.1 percent in the December quarter. Economists were expecting a decline of 0.1 percent and the Reserve Bank forecast a 0.2 percent fall.

"The kiwi is up half a cent very quickly on that significant positive surprise of CPI," said Imre Speizer market strategist at Westpac Banking Corp. "The implication from that rise is that the Reserve Bank will almost certainly be hiking rates in March. But it also raises the possibility that it will start as early as January."

Westpac's Speizer the Reserve Bank will have to reassess the outlook ahead of next week's rate review and "the chances of a hike in January have now been increased".

Central bank governor Graeme Wheeler had previously indicated he will start hiking the 2.5 percent official cash rate this year to head off the threat of future inflation as the Auckland and Christchurch property markets continue to bubble and as the Canterbury rebuild gathers momentum.

BusinessDesk.co.nz

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