When will NZ get on the Rate Hike bus ?
The news from across the Tasman of a further rate hike in the 'Lucky Country' has left New Zealanders wondering when rates are likely to rise over here. Some may argue that with the increase we have seen in the fixed term mortgages for 2 years out we have already seen a quasi tightening which has relieved some of the pressure on the RBNZ. The fact is that Australia is now running at near trend growth (around 3.5% per annum), a surge in corporate earnings, reduced unemployment rate and an economy which is very much on the front foot. Contrast that with NZ, mediocre growth, high unemployment - some would even say rising if you take the real figures rather than the politically manipulated figures we see - and corporate earnings which are better than expected but coming off a very low base and the increase is via cost cutting rather than increased sales etc. Hence no reason to increase rates yet , but with the currency under pressure especially against the AUD$ - one of NZ largest trade partners, that should see a further pick up in growth and this in turn will see upward pressure on rates. There is a fine balancing act between the rate hikes and keeping the growth, which is one the RBNZ will need to manage very carefully.
Rate increases are coming it is just when not if, when they do arrive it is not a time to panic . The very reason they have been increased is because the RBNZ can raise them and still keep the economy growing. Remember a market neutral rate is somewhere around 5.50% we are currently 2.5%!
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