Interest rate rises likely off until March

ROELAND VAN DEN BERGH
Last updated 05:00 20/01/2014

Relevant offers

Industries

High court bid in wings to shed light on TPP talks Inland port at Rolleston means more freight for Timaru Port of Tauranga opens its Canterbury inland port Windows 10 uses customers' computers to distribute updates Why faking your CV is a popular pastime Pager network to be switched off in 2017 TPP may force New Zealand to amend software patent law Shanton rescued, but another fashion store Identity in liquidation Rocket Lab signs deal to work with Nasa FMA sues former Milford Asset Management portfolio manager

Interest rate rises should remain on hold till at least March as inflation takes a slight dip in the December quarter, economists say.

Financial markets are looking to the latest inflation figures, due out on Tuesday, for clues that the Reserve Bank might increase interest rates at the end of this month, which would also result in higher mortgage rates.

"Financial markets are giving about a 40 per cent chance of a hike this month and are looking to the Consumer Price Index release as a potential catalyst," Westpac senior economist Michael Gordon says in a research note.

However, the consensus among economists is for a 0.2 per cent decline in inflation in the December quarter, in line with the Reserve Bank's expectations. That would keep annual inflation at 1.4 per cent, well below the Reserve Bank's 2 per cent target.

The Reserve Bank is charged with maintaining inflation between 1 per cent and 3 per cent.

The normal seasonal dip in inflation, or even a small surprise increase would not be enough to prompt the Reserve Bank to move early, economists said.

However, any evidence that domestically-generated inflation was picking up much faster than expected could prompt the Reserve Bank to skip the warning and hike rates in January.

Conversely, a softer than expected inflation figure could delay the inevitable increase a little beyond March, Gordon said.

Inflation typically falls in the last three months of the year due seasonal price reduction in particular for fruit and vegetables. The latest Food Price Index fell 1.4 per cent in the December quarter.

In addition petrol prices fell 3.4 per cent in the quarter, largely reversing a spike in prices in the September quarter when petrol peaked at about $2.27 a litre.

Cars were also expected to be cheaper as a result of the New Zealand dollar's sharp rise against the Japanese Yen in the last year, along with mobile and broadband prices.

The high New Zealand dollar has also helped to keep the cost of imported goods such as flat screen televisions and computers down.

Ad Feedback

- Fairfax Media

Special offers

Featured Promotions

Sponsored Content