RBNZ expected to raise rates this week

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Tuesday 8 June 2004

For once, economists are all of the same mind: the Reserve Bank will raise interest rates again on Thursday and will leave the door open for a further rate hike.

By The Landlord

Economists expect the central bank will raise its Official Cash Rate (OCR) from 5.5% to 5.75%.

The move is expected even though Australia’s central bank has left its cash rate unchanged.

Macquarie Bank’s economists note that both New Zealand and Australia have enjoyed healthy growth in recent years, even though their trading partners have struggled.

"This partly reflects the deft handling of monetary policy by the central banks. But it would seem foolhardy to assume that the economic sunshine will continue indefinitely," Macquarie says.

The Australia central bank’s restraint provides some optimism about the growth outlook, but the New Zealand central bank seems intent on lifting rates, even though growth is expected to slow substantially, it says.

"This, of course, tilts the risk surrounding the outlook substantially, in our opinion." There are two major reasons economists think the New Zealand bank will move. Firstly, after hitting 71 US cents earlier this year, the New Zealand dollar has retreated to a little above 60 cents and isn’t looking likely to take flight again.

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