But they say it’s likely to wait until March, when it will have the chance to fully explain its reasons behind its first hike.
There was a 0.1% increase in CPI in the fourth quarter of 2013, well ahead of the drop of 0.2% to 0.3% that most economists had been predicted. Annual inflation rose from 1.4% to 1.6%.
Westpac chief economist Dominick Stephens said it was the second quarter in a row that the quarterly CPI figures had exceeded Reserve Bank forecasts.
He said he still thought the OCR first rise would come in March but next week’s review was now not as sure a bet as it had been – especially as the dollar is providing less of a dampening effect than it was and housing-related pressure is not showing much sign of easing yet.
“The case for higher interest rates now looks well and truly sealed. While current inflation is still below the RBNZ’s midpoint target of 2%, it is accelerating, and a monetary policy response today is warranted in order to keep inflation under control a year or two from now.”
He said the bank knew that its failure to act early in previous cycles had meant that rates had peaked higher than they might otherwise have needed to.
Ben Jarman, of JP Morgan, had been expecting the Reserve Bank to hold off raising the rate until the second quarter of this year but said the CPI data had persuaded him it was more likely to happen in March.
The BNZ pointed out the rate was getting very close to 2%, the mid-point of the Reserve Bank’s target range. “Such things, in the first instance, question the wisdom of persevering with an extraordinarily low policy interest rate.”
It said the Reserve Bank probably should have already started to move on the official cash rate, but even the latest data would likely not be enough to force its hand this month.
Both the BNZ and Westpac said it expected pragmatic reasons to be behind the Reserve Bank’s decision to hold off moving the rate until March.
Stephens said: “The reason we think March is that it gives them the opportunity to lay out their reasoning for the increase in rates. It won’t be a popular move because the exchange rate is still extremely high and there’s a belief that a Reserve Bank move could drive it even higher.”
He said there was little benefit for the bank in moving early. “Six weeks is immaterial to the Reserve Bank.”
