How much will the OCR rise this year?

Economists are united in their view that the official cash rate will rise this week – making the Reserve Bank the first central bank in the developed world to start to lift rates this cycle.

Monday, March 10th 2014, 6:00AM

by Susan Edmunds

Of those polled by mortgagerates.co.nz, all said they expected a 25bps increase with the next monetary policy statement.

The economists pointed to signs of strengthening, such as increasing construction activity, strong export prices, higher household spending and strong migration inflows coupled with a lack of supply keeping the pressure on the housing market.

Reserve Bank governor Graeme Wheeler strongly signalled in January that a hike was coming – economists said at the time he was likely waiting for the March announcement because there would be more opportunity to explain his actions.

BNZ chief economist Tony Alexander said he expected the rate to have risen to 4.5% by the end of next year. “This Thursday… the Reserve Bank will review their official cash rate and the strong expectation of us all is that they will start to take away the extraordinarily low rate of 2.5% put in place to combat the global financial crisis and its lingering after-effects.”

ASB’s economists agreed it was a near certainty. “The RBNZ has signalled for quite some time that the OCR will start to rise over 2014 – it even came close to a hike in January. Now that the tightening cycle is starting, attention will turn to how quickly it will unfold.”

The bank’s economists said the risk was skewed towards more hikes than its prediction of 75bps over the year.

HSBC’s economists are expecting Wheeler to indicate more hikes to come, driven by increasing consumer confidence. “With demand booming and the economy already operating at capacity, the RBNZ should lift rates to keep inflation in check. We expect the RBNZ to follow through with a 25bp increase at next week’s meeting, and we have a total of 100bp of hikes pencilled in for 2014.”

Deutsche Bank said the impact of the LVR restrictions had not been enough to stop house prices being a concern, and a series of 25bps hikes was likely.

« LVR rules only working at margins: Tuffley

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