27 Jan 2014

Interest rates still tipped to rise in March

6:58 am on 27 January 2014

The Reserve Bank releases its review of the official cash rate later this week and some economists are calling for a rise, while many think it won't move until March.

A rise was largely anticipated at the bank's next Monetary Policy Statement in March, but higher than expected inflation for the December quarter may have sealed the case for a rise this week.

Infometrics managing director Gareth Kiernan says he doesn't expect the bank to move until March because it will want to see the full effect of lending restrictions brought in at the end of last year on the housing market.

"So that's I guess the main reason for holding off, certainly when you look at the range of other economic indicators they have been continuing to strengthen and that does raise the case for rates to rise."

Mr Kiernan says there could be grounds for raising interest rates this week given the strong GDP data for the September quarter and the stronger than expected inflation numbers which came out last week.

But he says historically the Reserve Bank has been more willing to put up interest rates at a full monetary policy statement rather than at the official cash rate reviews in between times, because it gives them a forum for fully explaining the decision and it will have made the decision with the benefit of a full forecast round.

Mr Kiernan says it's likely that the effects of any interest rate rises are already built into the New Zealand dollar.

He says the New Zealand dollar has been under upward pressure over the last two or three months as the prospect of interest rate rises has got closer.

Businesses told to prepare for higher interest rates

An accountancy body is warning small to medium sized businesses need to be prepared for higher interest rates.

CPA Australia's country manager for New Zealand, David Jenkins, says these organisations make up 97 percent of business in this country.

He says these businesses often operate on small margins that can potentially increase lending costs, so they need to seek professional advice so they can mitigate against some of these potential risks.

Mr Jenkins says access to additional funding for small businesses in New Zealand is not always easy, so when small businesses are looking to borrow money any interest rate increases would have a knock-on impact in relation to borrowing costs.

He says businesses need to make sure they are prepared for that which could be through financial instruments such as interest rate swaps or they could look at fixing their interest rate costs.