Rising housing, dairy prices puts pressure on OCR

Rising prices for houses and rents in Auckland, and for dairy products, are thought to be adding to pressure on the Reserve Bank to raise official interest rates earlier than planned.

TD Securities senior strategist Annette Beacher said steadily rising dairy prices and house prices were good news for both the domestic and tradable sectors of the economy.

"However, we believe the risks of leaving the cash rate at record levels for another year are increasingly unacceptable," she said today.

She continued to expect increases in the official cash rate (OCR) from the first quarter of 2010, with the first tightening as soon as January.

"The risks of pausing are starting to outweigh the risks of gently taking the foot off the accelerator," Ms Beacher said.

Last month Reserve Bank Governor Alan Bollard appeared to give himself some room to move forward the first rise in the OCR off its current record low of 2.5 percent.

But he still said the Reserve Bank expected to keep the OCR at its current level until the second half of 2010. Previously he had been saying the latter part of 2010.

Today Fonterra reported dairy prices lifted an average of 13.7 percent at its latest monthly auction. That took the rise during the past four months to 87.9 percent.

Also today, real estate company Barfoot & Thompson reported average house prices in Auckland up 4.8 percent in October from a year ago and up 5.8 percent from September, to a 22-month high.

The rent on property handled by the company rose 4.9 percent from September to an average of $403 a week, compared to $385 a year earlier.

The October rise in rents was the biggest seen by the company in seven years, and took the average above $400 for the first time.