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ASB pushes out date for OCR increase

ASB says a lift in the official cash rate is likely to be a more distant prospect than it first anticipated.

Friday, January 18th 2013, 6:21PM

by Susan Edmunds

The consumer price index contracted 0.2% over the December quarter, below market and Reserve Bank expectations.

The annual rate of inflation edged higher to 0.9% from 0.8%, but remains below the Reserve Bank’s medium-term inflation target band of 1%-3%.

ASB economist Jane Turner said the bank expected inflation to be quite contained in the near future.

As a result, the bank had shifted its forecast for the first OCR increase from December 2013 to March 2014.

She said an earlier increase was possible if the heat in parts of the housing market and the acceleration of credit growth became a concern to the Reserve Bank. 

“There is the small, but growing, possibility the RBNZ turns to its macro-prudential toolkit first if expected inflation pressures remain muted yet housing/credit growth strengthen in such a low interest rate environment.”

The rate of mortgage approvals reached more than 8000 per week in December for the first time since 2009.

Turner’s colleague, Christina Leung, said that was the kind of growth in credit that the Reserve Bank would be wary of but she did not think it was at a level to alarm governor Graeme Wheeler yet.

“It will be interesting to see how it pans out. It’s certainly one to watch.”

Comments from our readers

On 24 January 2013 at 8:36 am Aghast said:
So why have the ASB increased their 2 YR fixed rate to 5.45% out of step with some others?
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Westpac predicting rates to rise faster than forecast

In its recently released quarterly economic overview report, Stephens writes that Westpac’s prediction is for 90-day interest rates to rise much faster than either the Reserve Bank or the market expects.

It picks the first move in interest rates to happen in June 2013, when it says the OCR will still be at 2.50%.

By 2014, Westpac expects 90-day rates to be 4%. By comparison, the RBNZ tips them to have barely moved at 2.75% and the swaps market implied pricing puts them even lower, at just over 2.50%.
By 2015, Westpac expects rates to be over 5%.

Stephens’ report said that the Christchurch rebuild would make it hard for New Zealand to avoid substantial inflation.

“The inflation figures suggest that central co-ordination of small to moderate repairs – the bulk of the activity to date – has been effective in limiting construction cost inflation. This is unlikely to remain the case as major repairs and rebuilds take over as the main form of activity.”

He pointed to the fact that new housing in the Canterbury region has already risen roughly 10% over the past year.

Stephens said he expected home loan rates to follow the same trajectory as 90-day rates. They might stay on hold for another year or so but then would have to rise.

“Floating rates may not rise quite as rapidly as 90-day rates because at the moment banks have to pay a higher margin to procure funds from overseas. That pressure might come off.”
But he said it was unrealistic to expect the current historic lows to continue past 2013.

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