Interest Rates: Mid Year Target Still Likely For Interest Rate Rise
March 5th, 2010
Analysts JP Morgan now think the Reserve Bank is going to hold off its tightening till July, with a 50bp hike. Previously, JP Morgan had expected a 25bp move in April, because the deteriorating medium-term inflation outlook would prompt the RBNZ to tighten policy before official guidance suggested. In December The RBNZ said providing the economy continues to recover in line with the Bank’s forecasts, “conditions may support beginning to remove monetary stimulus around the middle of 2010.”
Given the persistent stream of weak data, however, and Reserve Bank Governor Alan Bollard’s desire for hard economy evidence the recovery is sustainable, on top of the soon-to-be-effective bank liquidity changes and the Budget in May, the RBNZ is likely to hold off until July. But JP Morgan says by delaying the first rate hike, the Bank will probably have to move more aggressively; in addition to the July hike the analyst is looking for another 50bp increase in September, after which the pace of tightening will slow.
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