50 basis point hike predicted for April

The Reserve Bank of New Zealand (RBNZ) kept interest rates on hold yesterday, but according to the latest Commonwealth Bank Economic Update, “the NZ economy has less spare capacity and a lower non-inflationary speed limit than previously thought.”

What this means is that while interest rates are steady for now, they won’t remain so; the Commonwealth Bank predicts the RBNZ will instead raise the official cash rate by 50 basis points in April.

In its December Monetary Policy Statement, the RBNZ signaled mid-2010 as the time for the next hike.

Inflation in the last quarter of 2009 was directly in line with the RBNZ expectation with a decline of 0.2 per cent. This result indicates the RBNZ has some breathing space for the time being; however New Zealand mortgage holders should be considering their budgets now, for an interest rate rise in the near future.