Interest rates to rise sooner than expected
Interest rates will now rise sooner rather than later following today's inflation figures.
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Interest rates will now rise sooner rather than later following today's inflation figures.
After last week's unexpectedly upbeat GDP figures and today's 21-year record inflation figure, December is now the latest, rather than the earliest, date for any increase in the official cash rate (OCR) by the Reserve Bank.
The OCR is now at 2.5% after the Reserve Bank suddenly cut it following the February Christchurch earthquake.
"It's looking increasingly like the 50bp OCR 'insurance' cut the Reserve Bank delivered in March needs to be unwound - soon," said ANZ Bank chief economist Cameron Bagrie.
"There is no room for the RBNZ to absorb any more upside surprises to inflation, or its medium term drivers...We struggle to see how the RBNZ’s June Monetary Policy Statement projections of inflation heading towards 2% by early next year can be achieved."
The most likely date for a rise in the OCR is 9 December, "but an earlier move cannot be ruled out," he said.
Prices are rising in almost all categories, not just the fuel and food categories which got most of the attention in today's inflation figures, Deutsche Bank New Zealand chief economist Darren Gibbs said.
"All up this strengthens the case for a late 2011 start to the tightening cycle that was already building from the recent activity data... if it wasn't for the turmoil in Europe and uncertain outlook for the US we suspect a number of market commentators would now be shifting their call for the first hike to be earlier than December."
In response to today's data, the local fixed interest market is now pricing in a 30% chance of a cash rate hike in September, and a 70% chance priced in of a hike by the end of October.
Overall, the market is now pricing in an OCR to 3% by January, said Bank of New Zealand head of market economics Stephen Toplis.
"That the market has these probabilities should be of no surprise. That it took a modestly stronger than expected historic CPI to get the market to this conclusion was."
Rob Hosking
Mon, 18 Jul 2011
Mon, 18 Jul 2011
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Interest rates to rise sooner than expected
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