JPMorgan: As of July interest hikes in New Zealand

10-13-2009 08:34

The Reserve Bank of New Zealand is expected to start a “rigorous” cycle of benchmark interest rate hikes, according to financial services firm JPMorgan Chase. Alan Bollard, governor of the New Zealand central bank, will probably maintain the official cash rate of 2.5% as he will increase it to 4% towards the end of next year, JP Morgan economist Helen Kevans commented. The economist forecasts interest rate hikes of 0.50 percentage points in July and September as the initial rate increases.

Postponing initial increases

Kevans continued by saying: “New Zealand’s central bank will not hinder the economic recovery by raising the interest rates too soon. Postponing the initial interest increases implicates that the central bank should handle more powerful when the series of interest hikes starts.”

Reserve Bank of New Zealand

The central bank governor stated on September 10 that he will not increase borrowing costs before the end of 2010 as he believes that the improving economy requires additional stimulus. After these comments, reports proved that confidence among businesses has reached a ten-year peak last month, while consumer confidence showed the highest level since 2005 in the third quarter, driving domestic demand, according to Helen Kevans.

Interest hikes in July

“It’s likely that the New Zealand central bank will switch to a neutral policy, which will be followed by the initial rate increment in July,” Kevans commented. “At that stage, the central bank should be convinced that retrieving policy stimulus will not hamper the stabilization of the economy.”
Bollard is expected to increase the cash rate by at least 0.25 basis points, according to seven of the 11 economists in last week’s survey. A swaps trading-based index by Credit Suisse, showed that currency traders expect a 4% rate for October 2010.
The New Zealand economy will expand by 2.8% in 2010, while earlier forecasts showed a growth of 2.3%, JPMorgan reported.