Economists brace for interest rate hike

By Rob Hosking

Friday 14th April 2000

Most economists are picking that the smell of a heating economy will be beginning to twitch noses at the Reserve Bank.

A further hike of 0.25% in the official cash rate is predicted for next Wednesday, as a foretaste of a 0.5% rate rise at the bank's monetary policy statement in May.

Although the country showed a growth spurt over the last two quarters - GDP was, at 2.2%, double market expectations - that surge is expected to level out over coming months.

A GDP figure of around 5% for the calendar year is still on the cards.

Inflationary expectations are also beginning to rise, driven largely by petrol price increases," according to WestpacTrust economist Michael Janes.

"If they keep moving up, then people will be expecting a flow-on from that," he said.

WestpacTrust believes the Reserve Bank will not lift interest rates next week.

"But we're about the only ones saying that," he said.

The central bank was likely to hold off until its May statement, he said, when it would have a better idea of the country's growth prospects over the coming 12-18 months.

ANZ Bank, which is picking a 0.25% rate rise on Wednesday, queried how much the central bank would have to lift interest rates after that.

The recent rise in the New Zealand dollar, plus the high level of debt by households and business, meant the Reserve Bank might not have to rely on higher interest rates to prevent the economy overheating to quite the extent that had appeared a few months ago.

Consumer price index figures are due out on Monday, and the Reserve Bank's most recent economic projections expect that figure to be 0.6%. If, as most bank economists expect, it is higher than that, the central bank will at least be spared a repeat of three months ago, when it unexpectedly lifted rates only to have the following CPI figure come out considerably lower than it (or anyone else) had expected.

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