NZIER warns against early OCR hike

An official cash rate increase before the economy is ready for it could cause serious damage, says NZIER chief executive Jean-Pierre de Raad.

Wednesday, July 10th 2013, 7:08AM

by Susan Edmunds

NZIER yesterday released its Quarterly Survey of Business Opinion. It showed businesses were hiring and investing more but price pressures remained low.

It found that 31% of businesses expect conditions to improve over the next six months. Employment expectations edged up and manufacturing was stronger, although retail prices and sales figures were down.

The NZIER said the survey indicated the Reserve Bank would not need to raise the OCR until the middle of next year. Other commentators are expecting a hike as soon as December.

De Raad said there was not the sort of generalised pressure on inflation that would cause concern. “The Reserve Bank is worried about the housing market, particularly in Auckland. If anything, we’ll probably see action in that area with specific tools rather than a move in the OCR.”

He said while private sector activity was increasing, outside Christchurch the public sector was easing off. He said any move in the OCR had to be done carefully. “We’ve got to be very careful about going too fast, it is a fledgling recovery, there are still some concerns. It’s not going gangbusters yet and it’s going to be some time before that is the case.”

Westpac chief economist Dominick Stephens said even though inflation was low, the economy was improving.

He said the survey actually provided more support to the view that New Zealand was in a self-sustaining upswing. And there were early signs of inflation pressures developing. “A few more firms were intending to raise prices and there is a bit of cost pressure.”

Stephens said it was still Westpac’s view that the Christchurch rebuild and low interest rates would soon stimulate inflation to 1%.

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