Another interest rate hike from the Reserve Bank seems to have been taken for granted on Wednesday.
A decade of high inflation, a decade of low unemployment, mounting wage pressures and record real estate prices are seen as compelling reasons for the central bank to continue the tightening policy begun last month.
Economists are almost unanimous that the official treasury rate (OCR) will be raised by 25 basis points, a quarter of a percentage point, to 0.75%, with a minority opinion that a 50 basis point increase at 1% is possible.
Salt Funds Management economist Bevan Graham said there were arguments for a larger or smaller increase.
“The main risk is that Covid is still in the community, there is economic risk and uncertainty and there is a longer recovery this time around, as Auckland has just come out of lockdown which pleads for slowness .
“But there is an economic risk, from an inflation point of view, they are already behind the curve … growth has been higher, the labor market has been tighter, inflation is higher expectations of ‘inflation are also higher, so the risk is that they won’t go a little faster, so getting to 2 percent or where they think it’s neutral won’t be enough. “
But regardless, Graham said a steady upward trend in rates could be expected in the first half of next year to bring OCR to at least 2%.
ASB Senior Economist Mike Jones expects “hawkish” statement and economic forecast to keep pressure on financial markets which have raised interest rates for businesses and consumers in anticipation further increases in OCR.
“Obviously, the market is already doing the RBNZ tightening work for it. Since the October meeting, wholesale interest rates have risen another 50 to 100 basis points. In turn, mortgage rates have also skyrocketed.
“Mortgage rates are still at historically low levels. But that kind of rate of change – if it holds up – will have a powerful dampening effect on the housing market and retail spending next year … the (Reserve) Bank will want the rate markets to interest keep making mahi for that, ”Jones said.
He said the RBNZ forecast for future rate hikes could indicate that OCR will reach a higher level than before, perhaps around 2.5%, and sooner than the 2024 shown in August.