Economists expect the Reserve Bank to increase interest rates again this Wednesday.
Factors which will influence the Reserve Bank of New Zealand [RBNZ] decision include high inflation, low unemployment rising wage pressures and record high house prices. The RBNZ began implementing its tightening policy in October.
Whilst there is some differing of opinion, the majority of economists believe that the official cash rate [OCR] will increase by 25 points to 0.75 percent. Some expect a much higher increase of 0.50 percent.
Bevan Graham, an economist for Salt Funds Management has considered both options of either the smaller or larger increase.
“The key risk is that Covid is still in the community, there’s economic risk and uncertainty and there’s a longer recovery this time round, because Auckland is just coming out of lockdown, that argues for going slowly,” said Graham.
“But there’s an economic risk, from an inflation point of view they’re already behind the curve, growth has been higher, the labour market has been tighter, inflation is higher inflation expectations are also higher, so the risk is if they don’t move a bit faster then getting to 2 percent or wherever they think is neutral won’t be sufficient.”
Graham expected regular patterns of rates increases into the first half of 2022 which would see the OCR reach at least 2 percent.
Senior economist for ASB, Mike Jones expects a statement and economic forecasts to maintain the pressure on the financial markets. The markets have been raising interest rates for both business and consumers in anticipation of of more OCR increases.
“Most obviously, the market is already doing the RBNZ’s tightening work for it. Since the October meeting, wholesale interest rates have surged another 50-100 base points. In turn, mortgage rates have also roared higher,” he said.
“Mortgage rates are still at low levels historically. But that sort of rate of change, if sustained will exert a powerful slowing effect on the housing market and retail spending next year. The [Reserve] Bank will want interest rate markets to keep doing the mahi [work] for it,” Jones said.
Jones believed that the Reserve Bank’s forecasts of future rates could see the OCR exceeding a higher level than before. He suggested 2.5 percent at an earlier date than August 2024.
