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Punters pick interest rate hike for October

The Reserve Bank will lift the official cash rate (OCR) in October, according to the latest weekly snapshot from Victoria University’s prediction website iPredict.

With growth and inflation expectations rising, the market now expects Reserve Bank Governor Alan Bollard to increase the OCR earlier than previously indicated.

The OCR is predicted to remain at 2.50% until October when there will be an increase to 2.75%, where it will remain until January next year, when it is expected to rise to 3.00%, and then to 3.25% in March.

As a result there is an 84% probability that average floating-rate mortgages will reach
6.00% by the end of the year, up from a 74% probability last week.

Expectations for GDP growth have marginally improved following last week's announcement of 0.8% GDP growth for the March quarter.

Growth over the next four quarters is expected to be 0.6% for the June quarter (steady), 0.8% for the September quarter (up from 0.7% last week), 0.7% for the December quarter (steady) and 0.6% for the March 2012 quarter.

Inflation expectations have increased following this week's announcement of an annual inflation rate of 5.3% for the June quarter.

Annual inflation is expected to be 5.0% in the September 2011 quarter (up from 4.7% last week), 2.9% in the December 2011 quarter (up from 2.6% last week) and 2.6% in the
March 2012 quarter (down from 2.7% last week).

Forecast unemployment has also improved.

Unemployment is expected to be 6.4% in the June 2011 quarter (down from 6.6% last week), 6.4% in the September 2011 quarter (steady), 6.1% in the December 2011 quarter (down from 6.2% last week) and 6.2% in the March 2012 quarter (down from 6.3% last week). 

More by Niko Kloeten

Comments and questions
3

Bollards first move will be to claim the full 50bps back in October, and the same again in December

Raising rates will be harmful to the economy. It will push up home rental rates (or puch down house values). It will put yet more cost on those who can least afford it.

Perhaps someone could explain where we have excess cash in the economy? Interest rate hikes are designed to remove money from the economy to cool it down when there is too much money circulating. Apart from the earthquake commission payouts I don't see the causes of expanded money supply.

Raising rates will further raise our dollar vs other currencies, lead to more importing or overseas holidays, and making exports less competitive.

The problem is, rising prices in specific sectors is not necessarily inflation, but they are interpreted as such.

Fuel & Food prcies up so increase interest costs and guess what I either reduce what little discretionary spend I have, cut back on essentials so less Gst or I increase my income and cause the inflation Bollard doesn't want. Understand?