Interest rate rises likely to be delayed

Monday 19 January 2004

All the economists at the major mortgage lending banks are in a rare state of unanimity: they all think the rise in the New Zealand dollar has been sufficient to prevent the Reserve Bank from raising interest rates later this month.

By The Landlord

After the RBNZ’s December Monetary Policy Statement, most economists thought a rate hike at the end of January was a virtual certainty. However, the New Zealand dollar has risen a further 4 US cents to 68 cents since then.

"We have to recognise that the ongoing strength in the currency could delay, limit or even completely forestall the need for higher interest rates," ANZ chief economist David Drage says.

ASB Bank economist Kate Skinner notes that the increase in the currency since the MPS is equivalent to a percentage point rise in interest rates in terms of its likely impact in slowing economic activity.

"We do not believe the Reserve Bank will lower interest rates on the implicit tightening caused by the currency appreciation. However, we no longer expect the Reserve Bank to begin a tightening cycle on 29 January. The rapid New Zealand dollar appreciation also puts a question mark over a rate increase in March."

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