12 Jun 2014

RBNZ expected to lift OCR to 3.25%

6:50 am on 12 June 2014

The Reserve Bank is expected to hike the cost of borrowing for the third time in four months when it meets on Thursday morning.

Reserve Bank governor Graeme Wheeler.

Reserve Bank governor Graeme Wheeler. Photo: RNZ / Diego Opatowski

That would lift the Official Cash Rate from 3 percent to 3.25 percent.

Economists are picking the Reserve Bank will lift the OCR once again to combat rising inflation pressures from the faster-growing economy.

But they are divided about how high the central bank will need to raise rates in the future to keep prices in check.

Some economists expect the Reserve Bank to take a stern line, and reinforce its message that the economy remains robust and regular rate increases will be required, perhaps as early as next month.

But others expect a pause until the end of the year, to recognise that the dollar remains high and parts of the economy have slowed.

Westpac Bank chief economist Dominick Stephens said he expected tough talking from the Reserve Bank, because it would not want to see the housing market take off again.

"The reason I think the Reserve Bank is going to give a bit of a wake-up call to the market is that they don't want to risk exacerbating, or re-inflaming, the housing market through a reduction in fixed mortgage rates, and the banks loosening up on lending."

However, other economists expected no further hikes after Thursday until the end of the year.