OCR hike in June if share markets don’t collapse 20%
In the BNZ Weekly Overview he says banks are having more difficulty borrowing funds in the European market with the cost of doing so increasing which is likely to manifest itself in New Zealand.
The crisis in Europe has pushed swap rates down on falling inflation worries but the extent to which these declines feed through into rates facing NZ retail customers will be limited if not completely offset by rising liquidity premiums to fund offshore.
Alexander says BNZ remains of the opinion that unless sharemarkets collapse another 20% in the next fortnight the Reserve Bank will raise the official cash rate (OCR) 0.25% on June 10 and indicate plans to raise the rate steadily from then on.
"But with an eye to changing the pace if conditions turn out to be weaker or stronger than they expect," he says.
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