Bollard gives himself "wiggle room" on first rate hike

Reserve Bank governor Alan Bollard appears to have given himself a little "wiggle room" on when he's likely to start hiking interest rates and has also signaled rates may not need to rise as much as in previous cycles.

Thursday, April 29th 2010, 11:37AM

by Jenny Ruth

In leaving his official cash rate (OCR) unchanged at 2.5%, Bollard changed the wording from expecting to raise rates about the middle of the year to "over the coming months."

"That gives them (the Reserve Bank) a little more wiggle room. That allows them, if they so desire, to look at a July move," says Chris Green, an economist at First NZ Capital.

"It removes that constraint of June being the middle of the year."

However, Green still expects the first rate hike will be in June.

Westpac economist Donna Purdue also expects a June hike. "It certainly doesn't nail down June" but "they've said things are panning out as they expected, if not stronger," Purdue says. Westpac expects the data over the next six weeks will continue to evolve in line with Bollard's thinking.

Darren Gibbs at Deutsche Bank is off the same mind. "I can't see what's going to turn the bank around and not have them tighten at the next meeting."

Bollard's message about how high rates will need to go this cycle was aimed at encouraging mortgage holders to stick with floating rates, Gibbs says. "They don't want people rushing out to fix mortgage rates and pay higher rates than they need to."

Nick Tuffley at ASB Bank, who is expecting the first hike in July, depending on the data flow, says the housing market is still subdued, retail spending remains "soggy for now and credit growth still looks pretty anemic."

"You're not seeing any signs of credit-fueled growth, particularly on the household side," Tuffley says.

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