Banks begin to raise rates

Reserve Bank governor Alan Bollard's decision to increase the official cash rate from 5.5 per cent to 5.75 per cent yesterday was greeted by protests from union officials and some politicians, but was seen as necessary by the markets.

Banks were expected to raise mortage rates in coming days, pushing the cost of a floating rate mortgage over 8 per cent.

The New Zealand dollar jumped almost a cent against the US dollar on the news, to US62.4c, while it leapt more than a cent against the Australian dollar to A90.5 - a 15-month high.

Bollard offered both carrot and stick to home-owners yesterday, offering the hope of stronger economic growth than earlier forecast but also warning that more rates rises were on the way if consumers did not check their spending.

The bank had expected economic growth to slow from around 4.5 per cent to 2 per cent in the year to March, but the actual growth rate looked closer to 3.5 per cent, he said.

Bollard confirmed the cash rate was the highest of any OECD country but said this was because Kiwis were so ready to take on debt.

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