WELLINGTON, June 10 (Reuters) - New Zealand's central bank
raised its official cash rate by 25 basis points to 2.75 percent
for the first time since global crisis and said further rises
depend on economic and financial market developments.
The rise, the first in three years, came as the domestic economy picked up steam after a long recession. The Reserve Bank of New Zealand (RBNZ) had kept the rate at record low 2.5 percent for a year.
The move on Thursday was widely expected and was forecast by 15 analysts in a Reuters poll of 18 economists.
****************************************************************
KEY POINTS:
- RBNZ says further removal of stimulus depends on economic and market developments.
- RBNZ says higher funding costs to reduce extent of future rate rises
- RBNZ expects growth of around 3.5 pct this year and next
- RBNZ sees temporary spike in inflation, but medium term within target range
- RBNZ says households still cautious, with housing market and credit growth subdued
- Click on for official text.
COMMENTARY:
CAMERON BAGRIE, CHIEF ECONOMIST, ANZ-NATIONAL BANK 'Marginally more upbeat, with references to growth becoming broad-based.
'The decision today is about responding to what they know, and they know momentum is picking up, trading partner growth is looking stronger than three months ago, unemployment is down, export commodity prices are moving up, which all point to the OCR being at a low level, which needs to be nudged up.
'That said, there are a lot of risks out there, most notably what's coming through in Europe. At the moment that is a risk as opposed to a reality, and they are responding to what they know.
'I think they've got another couple of hikes up their sleeve and at some stage this year we'll have a pause to assess what's going on.'
ROBIN CLEMENTS, SENIOR ECONOMIST, UBS
'It lookS to me as if they have figured in rate rises not at every meeting this year, but more aggressive tightening assumed next year, with a peak around 6 percent, which would be on the tight side.'
'The comment was made that it would it depend on market developments, and I think we should be expecting a series of rate hikes from here.'
HELEN KEVANS, ECONOMIST, JPMORGAN
'This statement is quite upbeat, I think Governor Bollard is rather upbeat on trade partners, partners in Asia, on the outlook for growth on export markets. So to me, this clearly signals further tightening down the road. Whether they hike at every meeting up ahead or not remains to be seen, but this definitely signals a tightening bias.
'We've got 3.5 percent (cash rate) pencilled in by end of the year but given that we didn't expect this one, I think 3.5-3.75 percent is our call now.'
MARKET REACTION:
The New Zealand dollar rose more than a third of a cent to around $0.6705 after the decision, while interest rate futures fell as much as 11 basis points.
LINKS:
- The Reserve Bank of NZ Web site is: www.rbnz.govt.nz
- For all New Zealand news and data, 3000 Xtra users can click on
BACKGROUND:
- Markets had priced in a 74 percent chance of a 25 basis point rate hike, according to a Credit Suisse index . The index had ranged between being fully priced in a month ago after a strong jobs' data to as low as 52 percent in late May on worries about the impact of the euro zone debt crisis.
- Annual inflation rate was 2 percent in the first quarter, in line with the central bank's forecast, and comfortably within its 1-3 percent target band.
- Data since the April review has been mixed, with consumer and business sentiment strong, but retail sales tepid, house prices and sales flat, and households cautious about taking on debt.
- The NZ economy is expected to have grown 0.7 percent in the three months to March 31 according to a Reuters poll. See Gross domestic product rose 0.8 percent in the three months to Dec. 31.
- The Reserve Bank of Australia held rates earlier this month after six rises in the past eight months. It voiced fears about possible contagion from the upheaval in markets prompted by the euro zone's fiscal problems.
- The Bank of Canada last week became the first G7 industrialised economy to raise rates after the global recession but said the European crisis made its next move unpredictable.
- The U.S. Federal Reserve is at 0-0.25 percent, the European Central Bank at 1 percent, and the Bank of Japan at 0.1 percent.
- The next RBNZ rate review is on July 29.
(Wellington newsroom tel 64 4 471 4234, fax +64 4 4736 212, wellington.newsroom@reuters.com) Keywords: NEWZEALAND ECONOMY/RATES (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The rise, the first in three years, came as the domestic economy picked up steam after a long recession. The Reserve Bank of New Zealand (RBNZ) had kept the rate at record low 2.5 percent for a year.
The move on Thursday was widely expected and was forecast by 15 analysts in a Reuters poll of 18 economists.
****************************************************************
KEY POINTS:
- RBNZ says further removal of stimulus depends on economic and market developments.
- RBNZ says higher funding costs to reduce extent of future rate rises
- RBNZ expects growth of around 3.5 pct this year and next
- RBNZ sees temporary spike in inflation, but medium term within target range
- RBNZ says households still cautious, with housing market and credit growth subdued
- Click on for official text.
COMMENTARY:
CAMERON BAGRIE, CHIEF ECONOMIST, ANZ-NATIONAL BANK 'Marginally more upbeat, with references to growth becoming broad-based.
'The decision today is about responding to what they know, and they know momentum is picking up, trading partner growth is looking stronger than three months ago, unemployment is down, export commodity prices are moving up, which all point to the OCR being at a low level, which needs to be nudged up.
'That said, there are a lot of risks out there, most notably what's coming through in Europe. At the moment that is a risk as opposed to a reality, and they are responding to what they know.
'I think they've got another couple of hikes up their sleeve and at some stage this year we'll have a pause to assess what's going on.'
ROBIN CLEMENTS, SENIOR ECONOMIST, UBS
'It lookS to me as if they have figured in rate rises not at every meeting this year, but more aggressive tightening assumed next year, with a peak around 6 percent, which would be on the tight side.'
'The comment was made that it would it depend on market developments, and I think we should be expecting a series of rate hikes from here.'
HELEN KEVANS, ECONOMIST, JPMORGAN
'This statement is quite upbeat, I think Governor Bollard is rather upbeat on trade partners, partners in Asia, on the outlook for growth on export markets. So to me, this clearly signals further tightening down the road. Whether they hike at every meeting up ahead or not remains to be seen, but this definitely signals a tightening bias.
'We've got 3.5 percent (cash rate) pencilled in by end of the year but given that we didn't expect this one, I think 3.5-3.75 percent is our call now.'
MARKET REACTION:
The New Zealand dollar rose more than a third of a cent to around $0.6705 after the decision, while interest rate futures fell as much as 11 basis points.
LINKS:
- The Reserve Bank of NZ Web site is: www.rbnz.govt.nz
- For all New Zealand news and data, 3000 Xtra users can click on
BACKGROUND:
- Markets had priced in a 74 percent chance of a 25 basis point rate hike, according to a Credit Suisse index . The index had ranged between being fully priced in a month ago after a strong jobs' data to as low as 52 percent in late May on worries about the impact of the euro zone debt crisis.
- Annual inflation rate was 2 percent in the first quarter, in line with the central bank's forecast, and comfortably within its 1-3 percent target band.
- Data since the April review has been mixed, with consumer and business sentiment strong, but retail sales tepid, house prices and sales flat, and households cautious about taking on debt.
- The NZ economy is expected to have grown 0.7 percent in the three months to March 31 according to a Reuters poll. See Gross domestic product rose 0.8 percent in the three months to Dec. 31.
- The Reserve Bank of Australia held rates earlier this month after six rises in the past eight months. It voiced fears about possible contagion from the upheaval in markets prompted by the euro zone's fiscal problems.
- The Bank of Canada last week became the first G7 industrialised economy to raise rates after the global recession but said the European crisis made its next move unpredictable.
- The U.S. Federal Reserve is at 0-0.25 percent, the European Central Bank at 1 percent, and the Bank of Japan at 0.1 percent.
- The next RBNZ rate review is on July 29.
(Wellington newsroom tel 64 4 471 4234, fax +64 4 4736 212, wellington.newsroom@reuters.com) Keywords: NEWZEALAND ECONOMY/RATES (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.