More Interest Rate Rises Predicted

July 26 2007

More Interest Rate Rises Predicted

An industry expert is forecasting further interest rate rises later this year, despite the Reserve Bank’s assurances today to the contrary.

BT Funds Management (NZ) Ltd Head of Fixed Interest, Andrew Blackler, said he anticipated further hikes in either December or January with the risk of more to come.

“This is the fourth time in three years that the Reserve Bank has stated or inferred it is finished raising rates only to hike rates on average six months later,” he said. “The concern is that the Reserve Bank sees the OCR as the tool to managing monetary policy when it is in fact the guidance or threat of how they will use the tool.”

Mr Blackler said that by stating it had finished raising rates, the Reserve Bank had achieved nothing. “On today’s announcement I think there will be downward, not upward pressure on term mortgage rates,” he said. “Mr. Bollard continues to believe that the OCR movements will cool spending but he needs to change consumers borrowing costs. Given New Zealanders preference to fix mortgage rates, I consider Mr. Bollard has failed once again.”

Mr Blackler said that Mr Bollard might have been swayed by political and public pressure, particularly regarding the high currency. “ It is imperative that the Reserve Bank gets domestic inflation under control (currently 4.1%) before the currency falls. The currency has provided to date a deflationary impact with tradeable inflation running at -0.5%. A falling currency would add to the Reserve Bank’s woes so they should be extremely careful about what they wish for.”

ENDS

Disclaimer: All opinions, statements and analysis expressed are based on information current at the time of writing and from sources which BT Funds Management (NZ) Limited (BT) believes to be authentic and reliable. BT issues no invitation to anyone to rely on this material and intends by this statement to exclude liability for any such opinion, statement and analysis.

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