No agreement on rate rise
For once economists are unsure what the Reserve Bank will do with rates on Wednesday when it makes its Monetary Policy Statement.
Monday, March 18th 2002, 1:32AM
by Jenny Ruth
Seldom have economists views on the timing and the amount of the central bank’s next move on the interest rate front been so divergent. About the only thing they all agree on is that rates are going up sometime this year.
ASB Bank is the only one actually picking a rate hike at Wednesday's monetary policy statement (MPS). It’s forecasting the official cash rate (OCR) will rise from 4.75% to 5%.
Another seven economists are saying the Reserve Bank will wait until May, but four of them are picking a 25 basis point hike and the other three say it will be 50 points.
Another four economists says the central bank won’t move until August and they’re equally divided as to whether it will be 25 or 50 points.
So what do the people who actually have money on the line think?
In aggregate, the market is betting on a 25 basis point OCR rise this week.
Mark Brown, fixed interest manager at Alliance Capital Management, says his firm has its money on the market having got a bit ahead of itself. It’s betting Reserve Bank governor Don Brash will content himself with hawkish words and won’t actually change the OCR.
If he does raise the OCR, Alliance reckons the market won’t sell off too much.
"We will either do quite well or we will just lose a little bit," Brown says.
Nevertheless, he admits to have become more nervous in recent days as more and more strong data has come in.
For example, retail sales in January rose 0.5% from December and were 8.6% higher than in January last year while ANZ Bank’s job advertisements measure jumped 6.2% in February, reversing about a third of the losses in the previous six months.
"Don Brash could quite readily articulate either case (no move or a rate rise). It’s a judgment call," Brown says. "I’m sitting here feeling more nervous about this (MPS) than I can remember."
Tower Asset Management fixed interest manager Tony Dickson says his gut feeling is that the Reserve Bank won’t move next week, but that if it did decide to raise rates, it won’t be just 25 points but will be 50 points.
That’s because the last move, the 50 point cut in November, was made as a form of insurance against the global economy worsening. But the insurance wasn’t needed because the global economy has improved.
Dickson doesn’t think the US Federal Reserve will want to raise interest rates next week – the decision of its open market committee will be announced just under two hours before our monetary policy statement is released.
"I don’t think there’s any way in the world the Reserve Bank wants to be the first central bank in the world to move." Instead, it’s likely to hold off until May.
"I do think when the tightenings come, they’re going to come reasonably hard and reasonably fast," Dickson says.
AMP Henderson head of investment strategy Paul Dyer says the timing and degree of rate rises aren’t really the point for him. "The key point is we’re almost certainly at the bottom of the interest rate cycle at the moment" and rates will rise back to more neutral levels.
"That sort of short-termism (worrying about the actual timing) is just noise at the end of the day," Dyer says.
He’s more interested in where exactly
neutral is these days. The market concensus is that the OCR at
about 6%, or perhaps a little less, is neutral.
To get MPS details emailed to you on Wednesday morning Click Here
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