Interest rate rise predicted

Sunday 18 April 2004

Rising building, energy and petrol costs are putting steam into inflation with some economists expecting the Reserve Bank to lift interest rates this month as a result.

By The Landlord

March-quarter inflation figures are due out today, with a market median forecast of a 0.5 per cent lift in general prices for the three months. That would take annual inflation to 1.7 per cent, well within the central bank's 1 per cent to 3 per cent range.

Some economists argue that interest rates could rise, if inflation is much above 0.6 per cent for the quarter.

Higher housing-related inflation will be countered by lower import prices but there was still a "risk" the central bank would raise the official cash rate to 5.5 per cent on April 29.

If the figure is at the high end of the forecast range of close to 1 per cent, the Reserve Bank may start to get nervous, especially with a weaker Kiwi dollar since the start of March, economists said.

"A CPI result above the 0.6 per cent the Reserve Bank has forecast (for the March quarter), would add to the risks of an official cash rate rise over April-June, though we still see little need for one," Westpac Bank said.

The Reserve Bank has put interest rates on hold recently, but that may be challenged by the falling New Zealand dollar.

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