RBNZ to be pleased with growth

Monday, June 28th 2010, 5:02PM

The Reserve Bank is likely to be pleased with the current mix of growth in the economic cycle as the household sector takes a back seat in driving it according to ASB Business Weekly.

It says the economic recovery continues with GDP expanding 0.6% in the March quarter and marking one full year of growth. Driving much of the improvement was a robust recovery in the productive sectors, in particular, non-food manufacturing, forestry and mining activity, construction and wholesale trade.

"We continue to expect the Reserve Bank to increase the Official Cash Rate (OCR) by 25 basis points in July, however last week's net migration data, with net inflows slowing more sharply, may trigger some concern around the downside risks to consumer confidence," ASB says.

J P Morgan Weekly Prospects says the nation's economic recovery should continue, underpinned in the very near term by higher private consumption.

"We expect that Kiwi consumers will bring a significant amount of spending forward ahead of the October 1 GST hike and thereafter private consumption likely will be subtrend as households embark on a  period of consolidation."

It says this will occur as the Reserve Bank continues to tighten monetary policy. It is forecasting another 100 basis points of tightening before year end taking the OCR to 3.75%.

BNZ Markets Outlook says the very front of the yield curve continues to price an 85% chance of a 25 basis point hike in the OCR in July, with an additional 50 basis points priced in until the end of the year.

ANZ Market Focus believes that barring a major shock, the next two to three hikes are as good as done. But it is not so sure about the pace of hikes beyond Q4.

"The OCR is heading to neutral, but it's unrealistic to expect it to get there in a straight line this soon after emerging from recession.

"We expect excessive rate hikes in late 2010/early 2011 to get priced out, placing downward pressure on short end rates."

Westpac Weekly Commentary says for mortgage borrowers, the decision to float or fix remains finely balance.

"Repaying more than the minimum amount and spreading the loan over a mix of terms can help to reduce the overall risk around uncertain future interest rate changes.

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