30 Oct 2013

Members of NZIER shadow board want rate hike

11:05 am on 30 October 2013

Two members of the New Zealand Institute of Economic Research's shadow board of economists and business leaders are calling for an immediate interest rate hike to curb Auckland's surging housing market.

The Reserve Bank will review the official cash rate on Thursday.

The institute says the economy is starting to show signs of robust growth, but inflation is low and the exchange rate remains high, weakening the outlook for New Zealand's exports.

It says most members of the shadow board recommend leaving interest rates on hold at 2.5%.

However, it says there is more support than in previous months for higher interest rates due to fears Auckland's housing market risks a costly downwards correction in house prices in the future.

Meanwhile, Deutsche Bank's chief economist Darren Gibbs says although he expects the Reserve Bank to leave rates on hold this week, it is likely to hike rates three times next year, taking the Official Cash Rate to 3.25 percent.

He says that's a little less than what is currently priced into the market. Risks for next year, he notes, include that the exchange rate continues to appreciate, and the possibility that confidence will weaken with the possibility of a change in government.

"It wouldn't surprise me to see confidence weaken through next year and that also might help to slow the Reserve Bank's tightening."